FOREX Fundamental analysis for EUR/USD on July 19, 2024
Everyone interprets the words in their own way. Christine Lagarde did not seem to say anything new: she did not hint at easing the ECB's monetary policy at the next meetings, but called the September meeting important. She noted the weakness of the Eurozone economy, but did not call it a long-term problem, as before. She mentioned high inflation in the service sector, but explained it by temporary factors, stressing that the disinflationary process continues. As a result, EURUSD fell below 1.09.
Despite the absence of clear signals of a rate cut in September, there were "dovish" notes in her speech. ECB officials are concerned about the weakness of the currency bloc's economy and want more data on inflation. They leave the possibility for a quarterly rate cut, which has created a serious obstacle to the growth of EURUSD. The pair's exchange rate dropped sharply, which allowed the dollar to show the best daily dynamics since the beginning of June.
According to Lagarde, the decision to keep the deposit rate at 3.75% was made unanimously, as was the thesis about the dependence of ECB policy on data. The Fed uses the same approach. However, against the background of a decrease in inflation in the United States from 4.3% to 2.6% and an increase in unemployment from 3.6% to 4.1%, Goldman Sachs and other analysts believe that the Fed could cut the rate as early as July.
However, most FOMC officials say that the time has not yet come for this step and we need to wait for new data. The exception is the president of the Federal Reserve Bank of Chicago, Ostan Goolsby, who believes that the current policy is too strict in the context of slowing inflation and the risks of cooling the US labor market.
However, the markets are listening more to the words of Jerome Powell, John Williams, Mary Daly and other representatives of the Fed, who claim that there will be no changes until September. This is good, since the probability of a rate cut in September is estimated by the market at 96%, and for the ECB at 80%.
Thus, the rates of policy change between the Fed and the ECB have leveled off, which deprives EURUSD of an important advantage. The main currency pair may move from a trend to consolidation with downward dynamics to the lower limit of the trading range. Our forex trading strategy assumes using pullbacks from supports at 1,086, 1.0845 and 1.082 for new purchases.