FOREX Fundamental analysis for EUR/USD on July 4, 2024
Despite the Fed's statements that they are in no hurry to cut rates, in the end, the regulator will still have to do it. Recent US economic data indicate the need for this step, and earlier than expected. Disappointing labor market statistics from ADP increased the probability of monetary expansion starting in September from 63% to 73%, lowered Treasury yields and allowed the S&P 500 to reach a 33rd record in 2024. Through the correlation of currencies and indices, this created favorable conditions for the growth of EUR/USD, which buyers took advantage of that.
Data on private sector employment from ADP and a serious increase in the number of repeated applications for unemployment benefits for the ninth week in a row indicate that everything is not as good in the American labor market as the monetary authorities say. The slowdown in the US services PMI index at the fastest pace in four years and the growth of the foreign trade deficit to its maximum since 2022 show that problems in the United States economy are snowballing. The Fed will have to respond by easing policy, and the Fed is starting to prepare investors for this scenario
In the minutes of the June FOMC meeting, some officials noted that monetary policy should play back economic weakness. Some Fed officials believe that high immigration creates imbalances in the labor market when rising unemployment is well combined with high employment. They believe that the forecasts of non-farm payrolls are clearly overstated.
This approach increases investors' interest in the June US Labor market (NFP) report and indicates that the Fed may signal the beginning of monetary policy easing as early as September. This will create additional difficulties for EUR/USD sellers.
Meanwhile, the political situation in France has stabilized. The yield differential of French and German bonds is decreasing against the background of the formation of a coalition of center-left parties. These parties withdrew their candidates in order to prevent the right from gaining an absolute majority in parliament. If the National Front does not get a majority, then Frexit and the collapse of EUR/USD to parity will go into oblivion.
Does this mean that the US dollar is capitulating? Unlikely. The Trump factor is still important. After the debate, the Republican's advantage over Joe Biden reached 6 points — 48% vs. 42%. This is the largest gap in the Wall Street Journal polls since 2021. At the same time, 80% of respondents believe that Biden is too old for a new term, 63% are dissatisfied with his work, and less than 40% approve of his policies.
In short, wherever EUR/USD moves, you can be sure of one thing — it will be a long-term movement. The easing of monetary policy will push the EUR/USD quotes up, but the Trump factor will limit the pair's growth. However, as long as the quote stays above $1,076, you don't have to worry about previously opened purchases. We are holding long positions.
EUR/USD Technical analysis
Today, the EUR/USD pair is showing signs of correction, as a result of which it reached the border area of the short-term downtrend within 1.0804 - 1.0792. Sellers did not let buyers go higher, which can be regarded as a signal for the formation of short positions with target marks of 1.0735 and 1.0666.
However, if the resistance of 1.0804 - 1.0792 is broken up, then we can talk about a trend change to an upward one. In this case, starting tomorrow, we can consider purchases with a target in the area of 1.0943 - 1.0918.
- Current support: 1.0804 - 1.0792.
- Nearest targets for short positions: 1.0735 and 1.0666.
- Potential targets for long positions at the breakdown of the area 1.0804 - 1.0792 - 1.0943 - 1.0918 .