FOREX Fundamental analysis of EUR/USD on June 26, 2024
The slowdown in the American economy is clearly not enough for the collapse of the US dollar. The economy does not have a constant of growth. At other times it strengthens, at other times it slips. It would seem that hardly anyone today would dare to say that the United States economy is in for a deep recession. However, discussions on this topic are already underway. Of course, the Fed should clearly indicate its position and confirm or deny the intention to lower rates. Instead, after the statements of FOMC officials, it seems that easing the exchange rate is not a priority for the regulator. Moreover, representatives of the Central Bank even hint at a possible tightening of monetary policy. Of course, against this background, the EURUSD will decline.
Michelle Bowman argues that migration is higher than ever, large-scale fiscal incentives and softening financial conditions increase the risk of a new wave of inflation. If it is resumed or the disinflation process is stopped, Ms. Bowman is ready to support an increase in the federal funds rate. Lisa Cook, in turn, believes that easing the Fed's monetary policy will be appropriate in the future, but does not indicate when exactly this future will come.
The market is starting to assume that by keeping rates at 5.5% and not giving signals about the timing of easing amid a slowdown in the economy and inflation, the Fed is demonstrating readiness for a hard landing. If a recession starts in the United States, the rate cut could happen dramatically and significantly. Interestingly, betting options predict a drop of 300 basis points in 9 months, which is significantly higher than the expectations of the FOMC and the market.
If a recession in the American economy occurs in 2025, it will seriously shake the dollar's position in forex currency trading. In the meantime, the greenback is winning thanks to the neutral and sometimes hawkish rhetoric of the Fed and political risks in Europe. Investors fear that the unexpected victory of the New Popular Front in France will be more devastating than the success of the leading National Rally.
Leftist forces in France plan to raise budget spending by €150 billion by 2027 in order to fulfill promises to reduce the retirement age from 64 to 60 years and raise salaries for civil servants by 10%. They are also going to raise taxes for the rich and corporations, without planning to reduce the deficit in accordance with EU requirements.
Political uncertainty in France worries investors, and even the rally of American stock indexes through currency correlation does not help the euro. And when the Nasdaq and the Dow Jones index go in opposite directions, the situation for the single currency becomes critical.
In such circumstances, can stock indexes be indicators of the state of the US economy and influence the growth of global risk appetite? Doubtful. Unsurprisingly, the movements of the S&P 500 often do not coincide with the EURUSD. A drop of the pair below 1.07 will strengthen the short positions opened at 1.0735.
Technical analysis of EUR/USD
EUR/USD is falling, developing a short-term downtrend. The sellers' immediate target is the 1.0670 level. If this goal is fulfilled, then sellers will go to test the Target zone 1.0664 - 1.0638. If this area does not withstand the onslaught of the "bears" and is broken down, then the next target will be the Golden Zone 1.0580 - 1.0571.
An alternative scenario is possible if EUR/USD strengthens above the 1.0760 level. In this case, the correction may continue to the border of the short-term downtrend 1.0806 - 1.0793. When this zone is reached, it will generate sales.