FOREX Fundamental Analysis for November 21, 2023
The sole leader in forex currency trading has not yet been determined, but investors already realize that it will not be the dollar. Speculators are hastily closing long positions on the greenback, which helped EUR/USD rise to three-month highs. The fundamental backdrop and stock indices are helping the European currency to recover.
The United States Treasury successfully auctioned $16 bln of bonds. The yield on the treasuries does not exceed 4.78%, which indicates a high demand for securities amid deteriorating macro statistical reports. Apparently, the economic potential of the United States is significantly overestimated, and the risks of recession, on the contrary, are underestimated.
Dynamics of bond yields and the U.S. Economic Surprise Index
The probability of the first Fed rate cut next March has risen to 30%, while the odds of a monetary expansion in May have risen to 59%. With a 55% probability, the derivatives market predicts a 100 basis point rate cut in 2024.
As a rule, Central Banks pursue a unified policy, so the ECB will decide to change the course of monetary policy after the Fed. The ECB is expected to cut rates by 90 bps during 2024. The transition to a soft policy of the Central Bank supports risky assets and has an impact on the dollar.
At the same time, some representatives of the monetary authorities, such as the head of the Central Bank of France Villarois de Galo, believe that investors have moved very quickly to the idea of a "dovish" reversal, forgetting about the long plateau of high rates.
I believe the financier is right. The market has quickly forgotten about the tremendous work of the central banks to curb inflation, especially since the last stage of this work is rightly considered the most difficult. It is easier to bring inflation down from 10% to 3% than from 3% to 2%. And as soon as investors remember this, EUR/USD will go into a pullback. On, and as long as the pair holds above the 1.094 pivot level, we will emphasize buying towards 1.12.