FOREX Fundamental Analysis for EUR/USD on July 11, 2023
Investors are buying EUR/USD on expectations of the end of the Fed's monetary restriction cycle. Inflation is declining, FOMC members periodically talk about the task almost completed. According to forecasts, US consumer price growth is expected to slow down to 3.1% in June and, it would seem, why should tightening financial conditions increase the risks of recession? But perhaps the EUR/USD rally is based on elementary Greed.
From the lows of October, EUR/USD has strengthened by 15.5%. And all thanks to negative forecasts predicting a near collapse of the US economy and, as a consequence, expectations of a dovish reversal. In addition, Europe was not hit by the horrors of the energy crisis, which significantly improved the prospects of the European economy. Investors were also waiting for a new "Chinese" miracle and hoped for a quick recovery of the Celestial Empire's economy after the pandemic restrictions.
Unfortunately, the Chinese model did not work. China's economic indicators show weak domestic demand, which has a negative impact on economic growth. In the Eurozone, the economy has plunged into recession, unlike the US, which demonstrates stability and confidence.
Thus, the drivers of EUR/USD growth have dried up, although the pair continues to strengthen solely on the expectations of the end of the Fed rate hike cycle. And although Jerome Powell outlined further tightening of the monetary policy course, the forecast of inflation decline and a number of statements of FOMC members allowed the "bulls" to consolidate above 1.10.
Investors do not want to hear the statements of the "hawks" of the Open Market Committee about the need for multiple rate hikes by the end of the year so that inflation not only comes down to the 2% target, but also can stay in this area for some time.
In other words, markets are hearing what they want to hear and ignoring the lack of a fundamental reason for EUR/USD to rise. Prices are already pricing in a decline in US CPI to 3.1% and core inflation to 5%. I believe the release of the report will set the stage and suggest selling the pair on the facts. According to John Murphy's technical analysis, short positions can be opened from the levels of 1.102 and 1.106.