FOREX Fundamental Analysis for EUR/USD on July 27, 2023
Investors see that the measures taken by the Fed to fight inflation are yielding good results and believe that the regulator will complete the cycle of tightening financial conditions with the July rate hike. Jerome Powell also states that the Fed will make further decisions depending on the data, being patient where necessary and decisive where necessary.
To be both decisive and patient is quite a difficult task for any Central Bank, so investors believe that this way the head of the Fed just leaves himself room for maneuver. After all, if you do not talk about the continuation of the hawkish course, you can easily collapse the dollar and cross out all the efforts of the regulator.
That is why Jerome Powell hinted at the possibility of another rate hike this year. Moreover, the Fed is no longer talking about the risks of recession of the U.S. economy, but forecasts only a slight decline in GDP growth.
In the United States, the economy will continue to recover against the background of slowing inflation. This is the so-called "Goldilocks mode" very favorable for U.S. stocks, and through the correlation of currencies and indices - for risk assets. The Dow Jones Index has already reacted to the July FOMC meeting by strengthening its upward trend.
Christine Lagarde simply does not have the same trump cards as Jerome Powell. Of course, the head of the ECB will repeat the mantra of making decisions depending on input data and, most likely, will remove the phrase about raising rates to limited levels from the final release. But this is unlikely to have any effect on EUR/USD dynamics.
Investors certainly doubt the ECB rate hike to 4%, but disinflation in the Eurozone is much more modest than in the US.
EUR/USD is unlikely to collapse after the ECB meeting. American stocks are growing, which is a support for the euro and a negative for the dollar. We don't exclude sweeping movements of currency assets during the news release, but we consider 1.096 as a kind of pivot level, and as long as quotes are above it, we leave the priority for buying.