FOREX Fundamental analysis for EUR/USD on August 9, 2024
Everything has an end, whether it's good or bad. Black Monday provoked panic among investors, who, fearing a recession, began demanding aggressive rate cuts from the Fed. However, a significant reduction in applications for unemployment benefits, the largest in the last year, helped calm the market situation and end the violent fluctuations in Forex. The EUR/USD pair has stabilized and is starting to look for new benchmarks.
It all started with the labor market and ended there. The sudden rise in the unemployment rate to 4.3% has raised concerns about a possible economic downturn. However, it became apparent that such a jump was caused by temporary layoffs in the states most affected by Hurricane Beryl. Therefore, the sharp decline in the number of applications for unemployment benefits in Texas was a great relief for investors.
The futures market reduced the probability of a 50 bps cut in the federal funds rate in September to 56%, whereas at the peak of Black Monday this figure exceeded 80%. In general, derivatives forecast monetary policy easing in 2024 by less than 100 bps, compared with almost 150 bps at the beginning of the week.
Kansas City Fed President Jeffrey Schmid doesn't think the labor market is weak. Although the July data raised doubts about its sustainability, many indicators indicate its strength. Schmid is not ready to support a rate cut, as inflation is still far from the 2% target. Thomas Barkin, his colleague from Richmond, noted that the Fed still has time to assess whether the U.S. economy is stabilizing or slowing down too quickly to require decisive action.
In my opinion, expectations of a 50bp rate cut in September remain overstated. The labor market temporarily weakened in July, but is likely to recover in August. It is too early to talk about a recession, which is good news for the EUR/USD bears. However, do not forget about Donald Trump's statement regarding the influence of the US president on the Fed's decisions.
According to Trump, the head of state should at least approve of the Fed's decisions. He believes that he has more business experience and instinct than Jerome Powell and his team, and notes that the Fed is often wrong.
Dynamics of ratings of US presidential candidates
Recent polls show roughly equal chances for Donald Trump and Kamala Harris to win in November, but if Trump returns to the White House and violates the Fed's independence, we can expect aggressive rate cuts and a weakening of the US dollar.
Meanwhile, EUR/USD is in the consolidation stage and is waiting for the publication of inflation data in the United States. Sales from the 1.094 level brought results, but in such a market it is worth setting more modest goals. Until August 14, it is better to focus on intraday trading.