FOREX Fundamental Analysis for November 29, 2023
The market received an indirect confirmation of the red-hot idea of a "dovish" reversal. In yesterday's speech, the head of FRB Chicago compared the monetary restriction cycle with the process of turkey cooking. Both there and there, he notes, the main thing is not to overdo it. Austan Goolsby believes that as inflation approaches the 2% target, the need to tighten financial conditions decreases. Markets saw the statement as a hint that the Fed is moving to a softer monetary policy.
FOMC member Christopher Waller, known for his hawkish stance, went even further in his reasoning. He believes that with inflationary pressures falling steadily, there is no point in keeping rates at a high plateau for a long time.
The markets took these words as a signal to sell the dollar. Stock indices rushed to new heights and dragged risky instruments, including EUR/USD, through currency correlation. The probability of the federal funds rate cut in May overnight rose from 51% to 70%. The odds of its reduction to 4.5% by the end of 2024 rose from 51% to 76%.
In addition, Christopher Waller reassured the markets by stating that the treasury rates are above the July values, when the Fed stopped monetary restriction, so there is no reason to worry about easing financial conditions.
If such hardened hawks are turning into doves, no great confirmation of risky ideas is needed. So, indeed, the Fed may allow monetary easing, as even the regulator's leadership sees current rates as unnecessarily high. Again, the Fed is not abandoning the scenario of a soft landing for the economy.
Now the markets are waiting for Friday's speech of Jerome Powell. If the head of the Fed confirms the course of the "regulator" on monetary expansion, the main EUR/USD rally will be ahead. Today we will analyze important statistics - annual data of US GDP and consumer price index. The pivot level for EUR/USD is 1.094. As long as the pair is trading higher, long positions remain relevant.