FOREX Fundamental analysis for EUR/USD on April 12, 2024
The ECB does not belong to the federal districts of the United States and does not repeat the actions of the Federal Reserve," said Olli Rehn, a member of the Bank's Governing Council, and this accurately reflects the situation. At the April meeting, the European Central Bank decided to leave the deposit rate at 4%, but hinted at a possible reduction in June. Frankfurt may start the process earlier than Washington, regardless of the Fed, which will negatively affect EUR/USD.
Christine Lagarde noted that several ECB board members were ready to cut rates, but most are of the opinion that it is better to do so in June. This obliges the regulator to act, especially given the current dynamics of inflation. CME derivatives estimate the chances of a Fed rate cut in early summer at just 24%. Thus, Frankfurt can start monetary expansion first.
Of course, the ECB does not depend on the policy of the Federal Reserve, but the United States remains the largest economy in the world, and news from there has an impact on the Eurozone. ING estimates that the effects of accelerating American inflation will be felt in Europe in about 6 months. Therefore, the futures market reduces the projected scale of monetary expansion not only by the Fed, but also by the ECB.
The collapse of the EURUSD could have been even more serious if not only consumer prices had accelerated, but also producer prices. However, the PPI increased by only 0.2% mom. The underlying index also remained stable. This gives some respite for EURUSD, but does not change the overall positioning of forex currency trading.
Boston Fed President Susan Collins notes that the urgency of lowering rates is not as important now as it was at the beginning of the year. Her colleague from the Federal Reserve Bank of New York, John Williams, believes that monetary policy adjustments are not required at all in the near future.
The different timing of the start and the pace of rate cuts lead to an expansion of the difference in US and German bond yields, which creates conditions for the overflow of capital from Europe to North America and a further fall in the EURUSD to the area of 1.055.
Although the euro may still surprise. The US corporate reporting season will begin next week, which may support the S&P 500 and increase appetite for risky assets, putting pressure on the dollar. However, an upward pullback of EURUSD will provide an excellent opportunity to sell the pair with an eye on 1.06 and 1.05.