FOREX Fundamental analysis for EUR/USD on August 28, 2024
The phrase "One in the field is not a warrior" is clearly not about traders who are looking forward to NVIDIA's reporting for the second quarter. Forecasts promise a sharp jump in revenue — from $13.5 billion to $28.7 billion, and profit could grow from $6.2 billion to $15.1 billion. Positive data will not only lift the company's shares, but also spur the growth of the S&P 500. The achievement of new peaks by the stock market with the correlation of currencies and indices will increase investors' risk appetite, which may become a favorable background for the growth of EURUSD.
The consolidation of the main FOREX currency pair near the 1.12 mark is due not only to the expectation of the NVIDIA report, but also to forecasts regarding the varying rate of monetary policy easing by the Fed and the ECB. As Goldman Sachs notes, it is difficult to be optimistic about the dollar when the start of easing the Fed's policy looms on the horizon. However, this factor is already embedded in the EURUSD quotes.
If the Fed cuts the federal funds rate slowly, the dollar may receive support due to the significant yield gap between U.S. Treasury bonds and foreign assets. In this case, capital will continue to flow to the United States, while maintaining the high attractiveness of American assets.
On the other hand, if the Fed accelerates the pace of easing due to signs of an economic slowdown, other Central Banks may also accelerate the pace of monetary expansion without much risk. However, this scenario would require a recession in the United States, which is not yet visible on the horizon, given the recent rise in the consumer confidence index to a six-month high.
Nevertheless, the decline in the dollar index to a one-year low gives confidence to the EURUSD bulls. The dollar index is no longer as attractive to buyers as other forex currency indices. Some analysts, including Eurizon SLJ, believe that the massive dollar sell-off is just beginning. The Fed's tight monetary policy temporarily hid the weaknesses of the greenback, for example, the double deficit — budget and trade. In addition, the war in Ukraine has shaken faith in the dollar as the main reserve currency. As rates decrease, these issues may come back into the spotlight.
I believe that the divergence factor of the speed of monetary policy of the Fed and the ECB is already reflected in the prices of EURUSD. In any case, the dollar may receive support. However, in the short term, the main risk for the greenback remains an increase in global risk appetite. If NVIDIA's reports turn out to be disappointing, this could lead to a drop not only in the S&P 500, but also in the EURUSD.
EUR/USD Technical analysis
EUR/USD is being adjusted downwards with the nearest target in the support area (A) 1.1117 - 1.1109. After testing zone (A), we will consider purchases in the format of a short-term uptrend. The first target of the bulls will be the level of 1.1155, the second - 1.1201.
If the support area (A) is broken down during trading, the correction will continue to the support area (B) 1.1075 - 1.1063. It will also be possible to consider purchases with a target at 1.1201.
To change the trend and sell the instrument, the pair needs to break through the level of 1.1063 and consolidate below.