FOREX Fundamental analysis on February 22, 2024
As a rule, fears come from uncertainty, so it is difficult to be afraid of what is already known. The market expected such rhetoric from the Fed, which could postpone the first reduction in federal funds rates to a later date. This was also discussed by representatives of the Federal Reserve at the end of January. However, now, a series of strong economic reports from the United States has changed forex currency trading. The publication of the minutes of the last FOMC meeting raised the EURUSD quotes.
The Fed is facing a difficult choice. Moving too slowly away from tight monetary policy could expose the U.S. economy to the risk of recession. Too fast a transition can trigger inflation again. Three weeks ago, the market expected the start of monetary expansion in March, so the phrase from the minutes that the majority of FOMC members are worried about the risks of premature rate cuts should have disappointed EURUSD. But this did not happen.
In fact, the U.S. economy has turned out to be surprisingly strong, and inflation continues to slow down. In such circumstances, monetary policy easing would be premature.
Investors drew attention to other signals from the Federal Reserve indicating its intention to carry out three acts of monetary expansion in 2024. Also, do not forget about the regulator's plans to reduce the balance sheet, which usually happens along with a reduction in rates. According to FOMC members, a slowdown in asset sales will prolong the QT program and reduce the risks of market destabilization. Reducing the supply of treasuries will raise bond prices and lower yields. This is positive news for EURUSD.
So Jerome Powell and his colleagues tried to scare investors in January, but a lot has changed since then. The markets themselves have come to the conclusion that the federal funds rate will begin to decline in June. As for the scale of the expected monetary expansion, after the publication of the protocols, they decreased slightly - from 90 bps to 86 bps. It is not surprising that EURUSD buyers were not afraid of this news.
Sales of the US dollar, which has lost its main support, are gaining momentum. Strong data on European business activity may further support the growth of the main currency pair. According to Citi, the previous dynamics of the PMI shows that the purchasing managers' indices in the Old and New World are either growing together, or the discrepancy between them is decreasing. This is considered a clear signal for the growth of the EURUSD. In addition, the overall positive dynamics of economic surprises in different countries indicates an improvement in the state of the global economy.
The euro, as a pro-cyclical currency, reacts positively to the good news of global GDP, which creates prerequisites for the continuation of the upward trend of EURUSD in the direction of the previously mentioned target of $1,088. It makes sense to maintain long positions formed in the area of 1.1073-1.079.
EUR/USD Technical analysis
On Thursday morning, EUR/USD seeks to break the resistance 1.0833 - 1.0820 and gain a foothold above this level. If the American trading session ends above the specified resistance, the short-term trend will change to an upward one. In the case of such a scenario, starting tomorrow, purchases of the instrument are possible in order to test the upper limit of the target zone 1.0972 - 1.0946.
If, during today's trading, prices return back with a subsequent update of the minimum on February 21, then conditions are formed for entering short positions with the goal of the minimum mark on February 14.