FOREX Fundamental analysis on February 16, 2024
The market always hears only what it wants to hear. Traders ignored the reduction in applications for unemployment benefits and the increase in import prices to 0.8% (mom). But they immediately drew attention to the first reduction in industrial production in three months and a significant decrease in retail sales in the United States. These indicators point to a slowdown in the American economy and may force the Fed not to delay lowering rates. What is not the basis for activating the "bulls" of EURUSD?
American exceptionalism, which helped strengthen the dollar in January and February, was under attack. Against the background of Japan's shrinking economy, stagflation in the Eurozone, recession in the UK and problems in China, the dollar looked like the leader among other forex currency indices. However, a 0.8% (mom) decline in U.S. retail sales, which was the lowest in almost a year, quickly changed the picture.
This report is a reflection of consumer activity, a key driver of GDP growth. The poor statistics prompted the leading indicator from the Atlanta Federal Reserve to lower the forecast for US economic growth in the first quarter from 3.4% to 2.9%. Goldman Sachs also revised expectations from 2.9% to 2.5%.
If the Eurozone economy begins to gradually accelerate due to slowing inflation, a strong labor market and higher real wages, the gap in economic growth with the United States may narrow, which will support buyers of EURUSD.
Despite the decline in the forecasts of the currency bloc's GDP, it is likely that the final results will be better than expected. This will also be a positive factor for the euro.
If the strengthening of the US dollar at the beginning of the year was due to expectations of changes in Fed rates and American exceptionalism, then by the end of winter these factors had stopped working out. Now the opinion of derivatives about the beginning of the Fed's monetary expansion in June coincides with the position of the Central Bank, although earlier investors expected the start of a cycle of softening financial conditions in March. The market forecasts a decrease in the cost of borrowing by 90 basis points, close to the FOMC forecast of 75 bps.
In addition, the position of the US dollar in forex currency trading, as a protective asset against the background of the growth of stock indices, no longer looks so perfect.
Inflation data can play a key role in the context of positioning foreign currency assets. A strong producer price index can cause concern in the market and slow down the S&P 500 along with the EURUSD. In this case, traders will return to selling in the direction of 1.073 and 1.064. Otherwise, the slowdown in the January PPI may be a signal to buy the euro at the breakdown of the $1.079 mark.