FOREX Fundamental analysis for EUR/USD on April 9, 2024
The American economy is showing strength, but the American currency is not strengthening. Despite the fact that the yield on US Treasury bonds has risen to maximum levels, the dollar shows no signs of growth, violating one of the main tenets of forex currency trading – a strong economy is a strong currency. The probability of a federal funds rate cut in June fell below 50%, but the EURUSD pair continues to grow. What's happening? Maybe the old forex trading strategies have outlived their usefulness? Why has the wind of change suddenly become favorable for the euro?
If at the beginning of the year futures assumed a reduction in Fed rates by 150 basis points, and Bloomberg analysts predicted US GDP growth in 2024 by only 0.9%, then in early April futures indicate a reduction in rates by 62 basis points, and economists raised the GDP growth forecast to 2.2%.
An additional confirmation of the strength of the American economy was the data on the labor market. An increase in employment by 303 thousand and a decrease in unemployment indicate strong consumer demand, which is an important component of GDP. The economy is on strong legs, and the leading indicator from the Atlanta Federal Reserve shows growth of 2.8% in the first quarter.
While PIMCO has reduced the forecast for the number of acts of monetary expansion by the Fed in 2024 to two, fewer investors in the market expect inflation to quickly return to 2%. At the same time, the growth of commodity market indices increases the likelihood of further growth in consumer prices. In this case, why would the Fed move to ease financial conditions at all?
In addition, a strong economy and a change in the outlook for the Fed rate coincide with the geopolitical situation and the US presidential election. As a result, EURUSD should confidently move towards parity. But in practice, the opposite happens - the pair continues to grow.
The euro is a pro-cyclical currency that is sensitive to the improvement of the global economy. Positive news from China and the Eurozone, together with strong releases from the United States, create prerequisites for strengthening the EURUSD rate. Thus, industrial production in Germany increased by 2.1% in February. Moreover, the growth rate was recorded for the second month in a row. The European Sentix index has reached its highest level since February 2022. Add to this the proximity of the S&P 500 index to record values, which indicates a high interest of investors in risky assets, and the strengthening of the euro begins to seem quite logical.
However, in my opinion, what is happening with the main currency pair is just a temporary lull. Investors are waiting for US inflation data for March and are trying to determine whether the spikes in consumer prices in January and February were temporary or the beginning of a new upward trend. If prices exceed Bloomberg forecasts - 3.4% (YoY) and 0.3% (mom), then EURUSD may face trouble.
The main currency pair is trying to project European optimism and faith in the global economic recovery. However, will EURUSD buyers have enough strength to keep the pair above the 1.0845 level? If not, we will get a signal to start selling.
EUR/USD Technical analysis
EUR/USD is trying to break above the resistance 1.0863 - 1.0850. If this area does not stand, then we can say about a change in the direction of the short-term trend to an upward one. In this case, after fixing the price, it will be possible to consider buying the pair with a target at the upper limit of the target range of 1.1001 - 1.0976.
If sellers hold the resistance and the corresponding trading pattern is formed, then it will be possible to form short positions with the nearest target at the minimum of April 5. If the price fixes below the extreme, then the next target will be the minimum level on April 2.