FOREX Fundamental analysis for EUR/USD on July 22, 2024
The softening of the ECB's rhetoric, a decrease in global risk appetite and Trump's trade policy helped the USD index show the best dynamics over the past six weeks. However, Joe Biden's exit from the presidential race was an unexpected factor that will add volatility to currency pairs. At the same time, the statements of the ECB's "hawks", the growth of business activity in Europe and the slowdown in the American PCE indicator may support the EURUSD.
Recently, markets have fluctuated between the expectation of the start of the Fed's monetary expansion in September and Trump's protectionism. Investors were selling shares of technology companies, replacing them with securities that could benefit from lower Fed rates. This led to a pullback of the S&P 500, compounded by a global software glitch that disrupted the flight schedule of 36 thousand flights and banking operations. A decrease in risk appetite affected the EURUSD.
The fall of the euro was facilitated by the results of the ECB survey among 57 large companies in the Eurozone. They plan to slow down wage growth from 5.4% in 2023 to 4.3% in 2024 and to 3.5% in 2025. At a press conference following the July meeting of the Central Bank, Christine Lagarde said that wage growth is declining. The head of the Bank of France, Francois Villaroy de Galo, noted that the markets correctly expect two acts of monetary expansion before the end of 2024. His Lithuanian counterpart Gediminas Simkus highlighted progress in disinflation and said a rate cut was just around the corner.
It is unlikely that the ECB's hawks will support such statements, because they will pay attention to the still high rates of wage growth and inflation in the service sector. With the gradual recovery of business activity in the Eurozone, especially after it became known that France had avoided the worst, the EURUSD bulls have a chance to counterattack.
Bloomberg experts predict a 0.1% slowdown in the US PCE in June. If this is confirmed, the three-month indicator will be below the Fed's target level of 2%. The Fed, avoiding sudden movements, may signal a rate cut in September at the end of July.
A computer glitch is a short—term factor that will not trigger a full-fledged correction of the S&P 500, and Joe Biden's exit from the race may suspend the redistribution of assets in portfolios and return interest in technology stocks, which through the correlation of currencies and stock indices will help the euro
As a result, the headwind for EURUSD will change to a tailwind, which will allow you to buy the pair when it rebounds from the supports at 1.086 and 1.0825-1.0835, or when the pair strengthens above the level of 1.0905.