FOREX Fundamental analysis for EUR/USD on May 31, 2024
A year and a half ago, after the unexpectedly successful midterm elections for the Democrats, Donald Trump's chances of returning to power seemed negligible. However, after the jury's verdict of Trump's guilt on 34 counts, his chances of becoming president increased to more than 50%. Really? there would be no happiness, but misfortune would help. This allowed the EUR/USD bears to recover after data on a slowdown in US GDP growth in the first quarter.
During his previous term, Donald Trump, with his trade wars, attacks on the Fed and thoughts about a strong dollar, generated uncertainty, increasing investor fears and strengthening the greenback as a safe haven currency. Such an atmosphere may return to forex currency trading in the event of his victory in the November elections.
The American economy is slowing down under the influence of high interest rates and lower income growth rates. The presidents of the Federal Reserve Bank of New York, John Williams, and the Federal Reserve Bank of Atlanta, Rafael Bostic, believe that the current policy is sufficient to slow inflation to 2%, while their colleague from Dallas, Laurie Logan, considers it insufficiently restraining. Such rhetoric does not exclude the possibility of further increases in the federal funds rate. I wonder how Donald Trump will react to this.
According to Bloomberg experts, the factor of the US presidential election is the second most important economic risk for the Eurozone after inflation. Six ECB deposit rate cuts are forecast over the next 18 months, one less than in the previous survey.
The euro was supported by information about the acceleration of inflation in May in two of the four largest economies of the Eurozone – Germany and Spain. This reduces the likelihood of an easing of the ECB's monetary policy in July after the expected June start. However, the final conclusions can only be drawn by analyzing the publication of data on European consumer prices.
The acceleration of inflation in Europe against the background of a slowdown in the index of personal consumption expenditures in the United States, the Fed's preferred inflation indicator, may create favorable conditions for strengthening EUR/USD. The main obstacle to the growth of the currency pair in the short term remains the unfavorable background associated with an increase in Treasury bond yields and a fall in US stock indices. Additional support for the dollar is provided by the factor of Trump's return.
Most likely, important inflation reports in Europe and the United States will create short-term volatility of currency pairs, but they are unlikely to allow EUR/USD to determine the further direction of movement. There is a high probability of a roller coaster with subsequent consolidation in the range of 1,079-1,086.