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.
FOREX Fundamental analysis for EUR/USD on September 13, 2024The market turned out to be adamant, and the dollar began to decline. The probability that the Fed will cut the interest rate by 50 basis points in September has increased from 13% to 45%. The chances of a large-scale monetary expansion increased after the release of data indicating a slowdown in inflation and a weak labor market in the United States. The ECB stimulated the strengthening of the euro against the dollar, and additional factors fueled the speeches of former head of the Federal Reserve Bank of New York William Dudley, who called on the Federal Reserve to act decisively, while expectations of a decrease in the growth rate of the PCE indicator in the United States also intensified.Although recent news about falling unemployment, rising wages and core inflation could signal a return to previous scenarios indicating the stability of the economy and a possible new increase in inflation, the Fed still prefers to be cautious. The probability of a 25 basis point rate cut in September initially jumped to 87%, but then dropped back to 55%. Investors are alarmed by the increased number of applications for unemployment benefits and rising producer prices.The August CPI and PPI inflation data show that the personal consumption Expenditure Index (PCE), which the Fed uses as a key indicator of inflation, may slow to 0.1%. This leaves room for a 50 basis point rate cut in September. Dudley is actively promoting this idea, arguing that given the weakness in the labor market, such a move would be justified.However, the weakening of the dollar in forex currency trading is not only due to expectations of aggressive actions by the Fed. The ECB also lowered the deposit rate to 3.5%, but the head of the bank, Christine Lagarde, practically rejected the possibility of easing monetary policy in October. She stressed the dependence of the Central Bank on the general economic situation, but not on individual data. Although inflation may decrease in September, it is expected to start rising again by the end of the year.These statements led to a revision of market expectations: the probability of further easing of the ECB's policy in October decreased from 40% to 20%, which allowed the euro to strengthen its position against the dollar.The derivatives market suggests that the Fed may cut rates 10 times over the next 12 months, while the ECB may cut rates 7 times, which increases the likelihood of a stronger euro. However, the Fed is unlikely to start cutting rates by 50 basis points, fearing a market reaction, while the weakening of the Eurozone economy may force the ECB to accelerate monetary expansion. We maintain the previous methods of forex trading and consider it advisable to sell EUR/USD when strengthening to 1.1115-1.1125 or when the bulls are unable to hold the level of 1.1085.EUR/USD Technical analysisThe EUR/USD quote has reached the resistance area (A) 1.1094 - 1.1086 today. The short-term trend remains downward, therefore, from zone (A) we will consider selling the pair with the first target of 1.1048 and the prospect of testing the minimum of September 11 -1.1002.If buyers are able to break above the resistance area (A) during trading, then the corrective growth will continue to the resistance area (B) 1.1140 - 1.1128. This zone is the boundary of the trend, and here we will also look for entry into short positions.To change the direction of the trend and switch to purchases, the pair needs to break through the level of 1.1140 and consolidate above. 
FOREX Fundamental analysis for EUR/USD on September 12, 2024The August inflation report in the United States sobered the treasury bond market, caused fluctuations on American stock markets and rocked currency trading on forex. The acceleration of core inflation by 0.3% over the month made investors doubt the beginning of an aggressive cycle of easing the Fed's monetary policy. This led to an increase in bond yields, which only recently fell to a two-year low, and gave the EUR/USD bears a chance to approach the important 1.1 level.Although the overall inflation rate slowed from 2.9% to 2.5%, investors' attention was attracted by the acceleration of the three-month benchmark index from 1.6% to 2.1%. Despite the statements of the US President's economic adviser Lael Brainard that this report signals that the peak of inflation has passed, the problem remains for the Fed. The data showed that the labor market is not cooling, and inflation remains stable. If it continues to grow, as in the 1970s, the Fed risks repeating the mistakes of the past, when prematurely declaring victory over inflation led to a double recession.In such a situation, the best scenario is to start with a soft rate cut of 25 basis points. The probability of such an outcome at the September Fed meeting increased from 66% to 87%, while the market continues to forecast a 100 bps rate cut in 2024, including a possible 50 bps cut in November. This explains the cautious decline in EUR/USD.The ECB may accelerate the pair's decline. Almost all Bloomberg experts expect a 25 bps reduction in the deposit rate to 3.5% at the September 12 meeting. Forecasts envisage two more rounds of monetary easing in 2024 and a rate cut to a neutral level of 2.5%. If ECB President Christine Lagarde points to the weakness of the Eurozone economy and slowing inflation, the euro's decline may accelerate.The American economy continues to show resilience, and the Fed risks accelerating inflation if it cuts rates too actively. At the same time, the weakness of the Eurozone economy may force the ECB to adhere to a soft monetary policy, which will give impetus to a further fall in EUR/USD.We are waiting for Christine Lagarde's press conference. If the head of the ECB hints at a rate cut in October, the EUR/USD pair may work out the goals of 1.1 and 1.0945 faster. We give preference to sales.EUR/USD Technical analysis EUR/USD remains in a short-term downtrend. Yesterday, market participants updated the minimum on September 10. The main target of sellers is the target zone 1.0949 - 1.0924.If the pair goes into an upward correction during the trading session, then it will be possible to wait for testing the resistance area 1.1094 - 1.1086. After testing this range, we suggest considering entering EUR/USD sales with a target at the minimum on September 11. The trend boundary shifts to 1.1140 - 1.1128. If this zone is worked out in the format of an upward correction, then we will also look for entry into short positions from it.. 
FOREX Fundamental analysis for EUR/USD on September 11, 2024If someone believed that the US dollar would benefit from the presidential election, then the recent debate between Donald Trump and Kamala Harris showed the opposite. After discussions, Harris' chances of winning rose from 53% to 56%, and the Japanese yen and Swiss franc benefited from this. Forex currency trading favored risky assets, which allowed EUR/USD to strengthen, rebounding from the 1.1-1.1015 support area.Despite Trump's rhetoric about the need to weaken the dollar to support American industry, his policies remain protectionist and pro-inflation. Trade wars and new tariffs may slow down global growth, which will negatively affect risky currencies such as the euro. In the event of an increase in inflation, the Fed may suspend monetary policy easing, which explains the recent growth of the EUR/USD pair against the background of Harris' success.Although Trump blames Democrats for the weakness of the fight against inflation, the reason for its growth was mainly external factors such as disruptions in supply chains. With their normalization, Bloomberg forecasts a decrease in the consumer price index in August from 2.9% to 2.6%, while core inflation will remain at 3.2%.These data alone are unlikely to determine the Fed's decision to cut rates in September, but combined with employment reports, they may affect expectations. The futures market assumes a rate cut of 150 basis points until January, which means a 50-point decrease at two of the four FOMC meetings.However, such a sharp weakening of monetary policy may indicate an approaching recession, which will cause panic in the markets, adding losses to traders. Does the Fed need this? Unlikely.The United States looks more economically stable compared to Europe, which is suffering from the war in Ukraine and the energy crisis. According to Morgan Stanley, the ECB has more reasons to aggressively ease monetary policy, and they predict a reduction in the deposit rate by 100 basis points during three meetings, including the September one. As a result, EUR/USD may fall to 1.02 by the end of the year, which is below the consensus of Bloomberg experts at 1.11.Goldman Sachs also predicts a fall in EUR/USD, as synchronous monetary policy easing is usually favorable for the dollar. Against this background, the market's reassessment of the Fed's actions opens up the opportunity to sell EUR/USD with rebounds from the resistances of 1.1065 and 1.109.EUR/USD Technical analysisYesterday, EUR/USD fulfilled all sales targets from the resistance area 1.1165 - 1.1152. The next target of sellers within the short-term downtrend is the lower target zone of 1.0949 - 1.0924. At the moment, the pair is going to work out an upward correction, during which we are waiting for testing of the resistance area 1.1107 - 1.1099. After that, we will consider new sales with the first target of 1.1061 and further - at the minimum of yesterday.The trend boundary is shifting to the levels of 1.1153 - 1.1141. If the pair reaches it, it will also be possible to look for entry into short positions. 
USD/CHF is showing a moderate rise, recovering from last week's decline during which the December lows were updated. The pair is currently testing the 0.8460 level for the possibility of an upward breakout, which is largely facilitated by John Murphy's technical analysis factors supporting the dollar's growth.Investors continue to analyze the August data on the American labor market, which came out worse than expected. The number of jobs outside agriculture amounted to 142 thousand, with a forecast of 160 thousand. Additionally, the downward revision of the July data — from 114 thousand to 89 thousand — caused significant volatility in the Friday session. At the same time, the average hourly wage increased from 0.2% to 0.4% on a monthly basis and from 3.6% to 3.8% on an annual basis. Against the background of these data, expectations for a Fed rate cut in September remained at the same level: the probability of an adjustment by 50 basis points is estimated at about 35%.In Switzerland, as predicted, the unemployment rate remained at 2.5% in August. Experts expect that the Swiss National Bank, given the continued weakening of inflation, will also lower interest rates at its meeting on September 26. The August consumer price index in Switzerland slowed from 1.3% to 1.1%, which is slightly better than forecasts of 1.2%.The indicators show ambiguous signals on the daily chart. The Bollinger bands begin to turn sideways, the MACD shows a weak buy signal, and the Stochastic stopped falling and leveled off near the 20 mark.We will consider buying after an upward breakout of the 0.8500 level. The nearest target is 0.8600. We will set the stop loss at 0.8450.If the price bounces off the 0.8500 resistance and breaks down the 0.8450 level, this will be a signal to start selling with a target of 0.8365. We will place the stop loss at the level of 0.8500. 
FOREX Fundamental analysis for EUR/USD on September 9, 2024The dollar has shown that it is not worth rushing to conclusions. In August, employment growth in the United States amounted to 142 thousand, which, it would seem, should have weakened the greenback. Moreover, the data for the previous months were revised for the worse, which led to an average of 116 thousand for three months. This raised expectations of a rate cut by 50 basis points in September with a probability of up to 50%, and pushed EUR/USD to 1.115. However, the situation has suddenly changed.The reaction of the markets is often superficial, but the details are important. The unemployment rate fell from 4.3% to 4.2%, and monthly wage growth accelerated from 0.3% to 0.4%. This indicates that the labor market remains stable and does not show significant deterioration, which is key to the Fed's decision. As noted by FOMC member Christopher Waller, although the labor market is softening, it is not collapsing, which caused a change in the dynamics of EUR/USD. As a result, the probability of a 50 basis point rate cut decreased to 31%.Investors began to realize that the Fed may act more cautiously than expected, which raises doubts about aggressive forecasts. reduction of rates by 225 bps over the next year. Such expectations seem excessive.The market's position is logical: the Fed was late in tightening monetary policy in 2022, which allowed inflation to accelerate. If the Fed slows down now, a recession may become inevitable. "Pigeons" from the Fed, such as the president of the Chicago Fed, Ostan Goolsby, believe that for a smooth slowdown in the economy it is necessary to act ahead of the curve, without waiting for a deterioration in the labor market.The Fed's shift in focus from inflation to employment may reduce the impact of CPI data on the market. US inflation is expected to slow from 2.9% to 2.6%, while core inflation will remain at 3.2%. Nevertheless, the results of the US presidential debate and the decision of the European Central Bank may be more important for the EUR/USD pair.The market is planning to reduce the ECB deposit rate from 3.75% to 3.5%, but further actions remain in doubt. If ECB President Christine Lagarde continues her dovish rhetoric, the euro may weaken.In addition, the strengthening of Donald Trump's position against the background of lagging behind Kamala Harris may bring back into play a factor that has a positive effect on the dollar.The failure of the EUR/USD bulls to stay above the 1.11 level indicates the weakness of buyers. A breakdown of support at 1.1065 will create conditions for building up short positions.EUR/USD Technical analysisEUR/USD last week tested the boundary of the short-term downtrend of 1.1165 - 1.1152. After that, the price returned under resistance 1.1118 - 1.1110 and reached the first sales target of 1.1072. Today, market participants are likely to try to gain a foothold below Friday's low. If they succeed, the decline will continue with a target at a minimum on September 3 in the area of 1.1026.If the price fixes below the 1.1026 level, the decline may continue to the lower target zone of 1.0949 - 1.0924.If the minimum is held on September 3, the price will try to work out an upward correction model, within which new sales of the instrument can be considered. 
FOREX Fundamental analysis for EUR/USD on September 6, 2024The US economy now resembles a glass of hot water that has been placed in a freezer, and this freezer is the strict policy of the Federal Reserve System. When the economy was booming, capital actively flocked to the American stock market, which spurred the strengthening of the dollar. However, at the first signs of a slowdown, stocks began to fall, investors lost interest in US securities, and the dollar was under pressure from sales. Now everyone is waiting to see if the August labor market report can show that not everything is so bad in the American economy and correct the attitude towards the greenback?For the first time in six months, speculators took purely "bearish" positions on the US dollar. Shorts came out in the amount of $8.8 billion, while back in May, $32.6 billion worth of "longs" were observed on the market. The rejection of the dollar is associated with a cooling economy, an increase in the likelihood of recession and a fall in stock indices. For the S&P 500 index, negative statistics on the US economy are becoming really bad news, since despite the easing of the Fed's policy, investors do not want to see a "hard landing".The yield curve, which came out of a multi-month inversion, indicates the approach of a recession. In the previous four cases, this invariably led to an economic downturn. This is also evidenced by the increase in unemployment. It seems that both investors and the Fed understand that the inflection point, after which unemployment may jump sharply, is already on the horizon. Jerome Powell promised to do everything possible to prevent a serious cooling of the labor market.However, signals of a slowdown are coming more often. After a reduction in the number of vacancies and an increase in layoffs, bad news also came from the ADP report, which showed employment growth in August by only 99 thousand — this is the slowest pace since the beginning of 2021. This figure was lower than even the most pessimistic forecasts of Bloomberg. In addition, the data for July were revised downwards.These factors, together with positive news from Europe, helped the EURUSD rise above the 1.11 mark. The unexpected 2.9% increase in orders in German industry in July, which is significantly better than forecasts (-1%), showed that the German economy is not as weak as expected.In France, political tensions have decreased after the appointment of a new prime minister, Michel Barnier, who was previously involved in the Brexit negotiations. This had a positive effect on French bond yields, reducing the spread with German counterparts, which also supported the single currency.EURUSD trading strategy for today. Despite the recent rise in the euro, this victory of the bulls may be short-lived. If the US labor market has recovered after Hurricane Beryl, then we get a reason to sell EURUSD in the direction of 1.1. Otherwise, weak employment data will increase the risks of recession, which may push the Fed to aggressively lower the rate and return the pair to 1.12.EUR/USD Technical analysisYesterday, EUR/USD strengthened towards the resistance area (A) 1.1118 - 1.1110. But, the zone was held by sellers. The bulls could not break through higher, so today we will look for an entry into the pair's sales near this zone with the first target of 1.1072 and further - 1.1026.However, if the resistance area (A) is broken up during trading, the upward correction will continue to the resistance area (B) 1.1165 - 1.1152. This zone is the boundary of a short-term downtrend. After testing it, you will also be able to search for entry into sales.To change the trend and buy EUR/USD, you need to break through the level of 1.1165 and consolidate above.At the same time, do not forget that today at 12:30 GMT, the US labor market report is released, which can disperse the volatility of currency pairs and lead to chaotic price outbursts. 
FOREX Fundamental analysis for EUR/USD on September 5, 2024The United States is facing impending economic difficulties. The number of open vacancies has decreased to a minimum in early 2021, the number of layoffs has peaked over the past year and a half, the foreign trade deficit is growing, and the manufacturing sector has remained in the recession zone below the 50 level for the fifth month in a row. Also, according to the Beige Book, the economy is showing signs of stagnation. Against this background, the markets demand that the Fed ease monetary policy, which supports the growth of the EURUSD.The smell of recession is in the air again, which is confirmed by the yield curve coming out of inversion, a harbinger of the economic downturn in the United States.The futures market expects the Fed to significantly ease in 2024 — by almost 110 basis points. Since the beginning of autumn, the chances of a 0.5% rate cut in September have increased from 30% to 45%. The weakening of the labor market increases the likelihood that the Fed will begin a cycle of aggressive monetary easing, and the first step may be by 50 basis points, which may not be the last major reduction.The increase in demands for easing the Fed's policy seems logical, but officials themselves remain calm. The President of the Federal Reserve Bank of Atlanta, Rafael Bostic, believes that now is the moment of balance between stable prices and maximum employment. However, the Fed must remain vigilant and do everything to reduce economic risks.Experts interviewed by Reuters believe that the Fed will cut the rate by 25 basis points at each of the three remaining FOMC meetings in 2024. This is less than the market expects, and as a result, the EURUSD rate may fall to 1.1 by November, and then rise again to 1.11 by the end of February and to 1.12 a year later.Thus, the Fed's decisions remain more unpredictable compared to the European Central Bank (ECB), where, according to forecasts, they will lower the deposit rate in September and carry out another 2-3 acts of easing in 2024. This uncertainty in the Fed's actions leads to increased volatility in the US bond marketAlthough in theory this situation should favor the dollar as a defensive asset, the lack of data on the American labor market for August makes it difficult for traders to choose the right forex trading strategy. Ahead of the publication of important statistics, the risks of EURUSD consolidation in the range of 1.102–1.109 or 1.104–1.111 are growing. In such a situation, it is reasonable either to stay out of the market or sell the pair on growth.EUR/USD Technical analysisYesterday, EUR/USD quotes went into an upward correction. Today, the corrective movement is likely to continue with a target in the resistance area 1.1118 - 1.1110. After testing this zone, we suggest considering new sales of the instrument with the first target at 1.1072 and with a view to 1.1026. If the price is fixed below the 1.1026 level, the sellers' next target will be the lower target zone of 1.0949 - 1.0924.An alternative option involves the growth of the pair with a subsequent breakthrough of the resistance area. In this case, the correction will continue to the trend boundary, which is located in the area of 1.1165 - 1.1152. After reaching this zone, we will also consider sales 
FOREX Fundamental analysis for EUR/USD on September 4, 2024The bad news has turned negative for the stock market again. Previously, negative economic statistics were perceived as a signal for an early easing of the Fed's rate, which supported the growth of the S&P 500. However, with the arrival of autumn, weak data on manufacturing activity in the United States caused a sharp drop in indices, similar to the fastest collapse since Black Monday.The drop in demand for risky assets through currency correlation led to the strengthening of the dollar as a protective asset and the collapse of the EURUSD to a two-week low.Everything is changing in the financial markets. Back in June, FOMC members did not plan to cut the rate in September. But by the end of the summer in Jackson Hole, Jerome Powell announced the need to adjust monetary policy. The turn to the "dovish" exchange rate is explained by a series of disappointing US economic data, which negatively affected the dynamics of the dollar. The head of the Fed also promised to support the labor market.Most likely, an important role in the regulator's decision was played not by the deterioration of the economy, but by the loss of the key argument by the EURUSD bears — the superiority of the United States over other economies. The country's GDP may slow down, but this will not necessarily lead to a weakening of the dollar. The bad news remains negative for stock indexes, and a decrease in risk appetite and uncertainty before the elections will contribute to a fall in the euro.Goldman Sachs believes that Donald Trump's return to the White House will slow down the economy due to protectionism and restrictions on immigration. Even fiscal incentives will not save the situation. Kamala Harris's presidency will only slightly accelerate GDP growth.In any case, GDP growth will slow down, and the Fed will have to ensure a "soft landing" of the economy, as it was in 1984, 1995 and 2000. In 1984, the rate fell by 300 basis points in four months, in 2001 — by 275 in the first half of the year. In 1995, the decrease was 75 points in 7 months, but before that there was no increase in the rate by 150 points, as in the previous cycle.To ensure a soft landing for the economy, the Fed must act decisively. However, this requires a slowdown in the labor market, otherwise an aggressive reduction in rates does not make sense.In anticipation of important employment data for August, the EURUSD pair may consolidate in the range of 1.102–1.11. Growth near the upper limit of this range may be a good selling opportunity.EUR/USD Technical analysisOn Tuesday, the short-term downward trend of EUR/USD continued. As a result, the pair updated the minimum on September 2. The main target of the decline is the lower target zone of 1.0949 - 1.0924. Today, we can expect a continuation of the downward trend with an update of yesterday's low.New sales are best considered after an upward correction. Strong resistance levels are: resistance areas (A) 1.1118 - 1.1110 and (B) 1.1165 - 1.1152. In the case of testing by a pair of these zones, we will open sales when the appropriate signals appear. The sellers' first target will be the 1.1072 level.