FOREX Fundamental analysis for EUR/USD on July 24, 2024
July turned out to be a month of struggle between the Fed's monetary policy and the political risks associated with Donald Trump. In the first half of the month, the weakening of the labor market and inflation in the United States increased the likelihood of a reduction in the federal funds rate in September from 73% to 100%, which caused an increase in EUR/USD. However, in the second half of the month, the situation changed dramatically. Investors were seriously concerned about the policy of the Republican leader, which led to a strengthening of the US dollar.
UBS predicts that the introduction of 60% tariffs on Chinese imports will slow down China's GDP growth by 2.5 percentage points. China's economy is expected to grow by 4.6% in 2025 and 4.3% in 2026, but in the event of a trade war, this growth could fall below 3%. The eurozone, already struggling because of China, will suffer even more. A small rate cut by the People's Bank of China is unlikely to significantly change the situation.
Large companies in the European Union report a decrease in revenues in trade with China. Goldman Sachs recommends selling shares of European brands, and so far this strategy is justified. Deterioration of corporate results may lead to mass layoffs and a decrease in production, which will negatively affect the Euroblock's GDP.
The biggest problems due to Trump's new tariffs await Germany, which accounts for half of EU exports to China. The slowdown in Asia's largest economy has been a long-term trend, but until recently it was offset by U.S. GDP growth. Now that the American economy is slowing down, Europe's recovery is under threat.
In forex currency trading, the Euro is associated with optimism, and the dollar is considered the currency of pessimists. Therefore, against the background of the correction of the S&P 500, the potential slowdown in global GDP due to the resumption of trade wars and the political chaos that Trump may bring, EUR/USD is falling. Political pressure on the Fed to aggressively lower rates and return to the practice of currency interventions within the framework of a weak dollar policy also plays a role.
Investors got distracted from the Fed and immersed themselves in Trump trading, which, in my opinion, came to the markets too early. We must pay tribute to Trump: the debate won and the assassination attempt strengthened his position in the election race, which, of course, influenced the EUR/USD exchange rate
Most likely, the Trump trade will remain in force until November, and investors will return to the Fed's policy at the beginning of the month after the publication of employment and inflation data. A roller coaster awaits EUR/USD, and its further fate, and at the same time, forex trading methods, depend on the pair's ability to stay above 1.083. If this succeeds, there will be a chance to restore the uptrend. Otherwise, you will have to sell before the release of US labor market data for July.