FOREX Fundamental analysis for September 27, 2022
It is known that currency trading on the forex market is similar to swinging. Assets climb higher and higher, only to rapidly descend afterwards.
The trade-weighted dollar rate, calculated by the Fed over the last year rose by 22% and reached a new record high.
But as the historical calculations show, the index was down 7.7% and 6.7% for two months in 2009 and 2015, after rising over 20%. Are we headed down the mountain again anytime soon?
Net longs on the dollar as of September 20 are $10.23 billion, almost half the value of July's high of $20 billion. Nevertheless, forex hedge funds have been holding bullish trades for 62 weeks. The BofA calls the greenback purchase "the most crowded trade," although analysts at investment firm Bailard predict a 10-15% rebound in the dollar against the euro and yen in the very near future.
Other experts are less determined. Indeed, most of the "bearish" factors have already been taken into account by EUR/USD quotations, which gives grounds for an upward correction, but the fundamental background is still negative towards EUR and favors the dollar. Though ECB decided to keep up with the Fed and raised the rate by 75 basis points, the pace of monetary restriction is incomparable. In addition, the Fed is reducing its balance sheet by $95 billion a month, which the European regulator cannot afford. Christine Lagarde thinks QT can be launched only after rates reach a neutral level.
Also pressure on EUR/USD is supported by the difference in economic growth rates. The war in Ukraine, which according to the World Bank will cost the global economy $2.8 trillion, still hurts the Eurozone more than the United States. If the Russian invasion continues, gas prices could rise another 30-50%, sending the Eurozone economy into recession.
In addition to the above factors, EUR/USD sellers are supported by investors' rejection of risky assets.
Sellers' fixation of short positions might provoke a pullback with a possible recovery to the parity level. Nevertheless, the downtrend remains in force. The pair might continue falling first to 0.95 and then to 0.92, so we continue to sell on the rise.
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Trade idea for USD/JPY on March 30, 2023At the Asian session on Thursday USD/JPY does not show a clear direction of movement and trades near the level of 132.30. The day before the pair tested the high of March 17 at 132.86, but failed to consolidate at these heights.The Japanese currency is traditionally put under pressure by the end of the fiscal year in the Land of the Rising Sun. In addition, deputy governor of the Bank of Japan Shinichi Uchida said the day before that monetary policy adjustment of the regulator is possible only with price stability and improvement in economic conditions. At the same time, the official believes it is very important to maintain the inflation rate within 2%.Kazuo Ueda will become the Governor of the Bank of Japan in April and is expected to correct monetary policy, though the official himself has repeatedly declared adherence to soft course, chosen by his predecessor Kuroda.At the same time the situation can easily change, because important macroeconomic reports are coming out today in Japan. At 23:30 GMT the inflation report, industrial production and retail sales data will be released. Consumer prices are expected to slow from 3.4% to 2.7% and core inflation is expected to strengthen from 3.2% to 3.3%. We believe core inflation is the most accurate reflection of the situation and believe the report will force the Bank of Japan to move to tighten monetary policy, which will send USD/JPY lower.We suggest including a sell order in the trader's trading diarySell-stop 132/00 take-profit 129.00 stop-loss 133.00 
FOREX Fundamental analysis for EURUSD on March 30The dynamics of foreign exchange assets in the forex market depends on many factors. This is the difference in rates of monetary policy, economic indicators, and various risks - financial and geopolitical. But there is one more important trading criterion - volatility of currency pairs. The breadth of quotes fluctuations of this or that asset allows you to earn in currency trading on the forex market. Volatility has lately been supporting the dollar, sending EURUSD into a downward correction.BofA analysts note that expectations of a Fed interest rate hike to 5.25% have lifted volatility in the major currency risk to three-month highs. But volatility peaked last fall. At that time, the dollar index was the undisputed leader among other forex indices.EURUSD dynamics and volatility of the main currency pairOf course, much of the demand for the greenback stems from the habit of investors to buy the dollar at any alarming signals. In 2022 it was the dollar that was the main defensive asset at Forex. But now that the epicenter of the banking crisis has become the United States, investors began to look at other protective assets, gold, the yen, the franc and...... the euro.The BofA believes that increased volatility in currency pairs could return when U.S. inflation is high. This is a logical explanation, as the Fed still considers the fight against inflationary pressure to be its main task. Now the regulator's monetary policy has been interfered with by fears of spreading banking problems and the futures market is lowering the maximum rate to 4.9%. However, if the situation in the banking sector stabilizes, it is unlikely that the Fed will move to a wait-and-see attitude, risking the loss of all gains from previous restrictions.The dynamics of the expected rate peaks of the Fed and the ECBOf course it is not rational to expect a 6% rate from the Fed, but 5.5% is a realistic target which has been discussed many times at FOMC meetings. In any case, the ECB's potential for a 75-100 basis point rate hike creates support for the single currency. But this is in the medium and long term. In the short term, volatility growth favorable to the greenback cannot be ruled out.In addition, let's not forget the basic rule of forex trading - "buy on rumor, sell on fact". Markets are excited about the prospects of European inflation growth up to 5.7%, but the statistics release might turn out to be a disappointment for the "bulls" in EUR. On the technical side - if the EUR/USD buyers are unable to get a grip on 1.082, it will be possible to sell the pair in the short term. 
Analysis for GBP/USD on March 30, 2023On Thursday GBP/USD traded in multidirectional dynamics around the local highs of February 2.The head of the Bank of England said that the regulator's priority is to fight inflation. The consumer price index accelerated to a record 10.4% in February, forcing the Bank of England to once again raise the interest rate by 25 basis points to 4.25%. Nevertheless, Andrew Bailey believes that inflationary pressures will begin to ease by summer. In addition, the head of the Central Bank believes that the British banking system is quite stable and is unlikely to suffer from the problems of the financial sector in the U.S. and Europe.The British statistics released the day before had no significant impact on GBP/USD dynamics. There was a decline in consumer lending in February but there was a sharp rise in the number of approved mortgage applications.Today, the final estimate of the fourth quarter GDP will be released in the US, while the Bank of England will release a report on the first quarter of 2023.GBP/USD Technical AnalysisThe Bollinger Band indicator on the daily chart is showing growth, as is the MACD indicator holding a buy signal. The Stochastic oscillator is testing the overbought area boundary (80%) from the bottom up and may enter the range of maximum values in the near future.Upon breakdown of the resistance at 1.2350, we continue to form long positions with the next target at 1.2450. Stop-loss is set at 1.2300.If the price fixes below support at 1.2283, the investor starts selling with Take Profit at 1.2176. Protective stop will be set at 1.2350. 
USDJPY continues to recover losses and in the Asian session on Thursday trades around the local maximum of March 22. Decreased risks of the banking crisis in the U.S. again returned investors to buying the dollar.In Japan the end of the fiscal year is coming, which traditionally puts pressure on the yen. The Bank of Japan is hesitant to move to tighten monetary policy and says that a rate change is possible under "certain price and economic conditions." The regulator, the only central bank of developed countries, keeps interest rates in the negative area (-0.1%) and 10-year bond yields near 0.0%. The new Governor of the Bank of Japan, Kazuo Ueda, is expected to take up his duties in April; however, the new head of the central bank has previously spoken of continuing the "dovish" course of Haruhiko Kuroda.Tomorrow there will be a block of economic releases in Japan. Investors are waiting for inflation report, industrial production data and retail sales statistics. For lovers of forex trading based on news the Asian session on Friday promises to be volatile. The consumer price growth is projected to slow from 3.4% to 2.7% in March, though core inflation may rise from 3.2% to 3.3%.Technical analysis for USDJPYThe Bollinger Bands on the daily chart are returning to a flat. The MACD indicator is in the negative range, but it is quickly approaching the zero line and holding a buy signal. Stochastic oscillator rises to the 80% level.After the pair has fixed above the key resistance level of 133.00, we open long positions with Take Profit at 134.54. Stop Loss is set at 132.20.Decrease in the pair below 132.00 will be a signal to sell towards 130.00. We place a stop loss at 133.00. 
FOREX Fundamental analysis for EURUSD on March 29, 2023Not so long ago, the U.S. dollar was deservedly regarded as the undisputed leader in currency trading on forex, receiving support from the American exceptionalism, the "hawkish" course of the Fed and the demand for protective assets. But now the banking crisis has arrived and investors are abandoning the greenback in favor of gold, the franc and the yen. Moreover, if in the fall the world was expecting a deep recession in the Eurozone economy, now the opposite is true. A deep recession is forecasted for the economy of the Investigative States, while the Euro bloc economy is giving strong signals of recovery, which only plays into the hands of the EURUSD buyers. The dollar has only a chance for further tightening of the Fed's monetary policy, but judging by the latest statements of the regulator's representatives, this chance is pretty slim.Actually, the banking crisis is a side effect of the tightening of monetary policy. A decline in lending with full portfolios of cheapening bonds is not the best option for any bank, especially since financial institutions in the United States are used to living with the soft policies of the Central Bank.The banking crisis is dragging the U.S. economy into the hole, as confirmed by the head of the Minneapolis Federal Reserve Bank, Neel Kashkari. Bloomberg predicted that the probability of a recession within 12 months rose to 60%, well ahead of the negative outlook for the Eurozone.Trends in the likelihood of recession in the U.S. and the eurozoneInvestors, fearing a recession scenario, are buying treasuries, thus reducing bond yields, which puts pressure on the dollar. The franc, yen and gold took away the greenback's status as the main defensive currency. In such conditions the idea of the "dovish" U-turn of Fed, which can be realized this time already in the current year, appeared in the market again.Dynamics of market expectations on the Fed rateThe ECB has a more hawkish stance than the Fed. Christine Lagarde keeps saying the regulator will continue to fight inflation through rate hikes, which means EURUSD has good growth prospects towards 1.12 and 1.14. Our preference is to buy. 
USDCAD analysis on March 28At the Tuesday morning session USDCAD continued the decline started the day before and came close to the key support at 1.3600.Risky assets are supported by the improvement in the market situation. The day before it became known that First Citizens BancShares Inc. agreed to buy most of the problem loans of collapsed SVB. This decision increased consumer confidence and reduced the risks of a financial crisis.The head of the Bank of Canada said the possibility of an economic downturn is growing. Stephen Poloz noted that the negative outlook comes on top of the regulator's fight against inflation, which has reached 8.1%, a 40-year high. The bank's monetary tightening, which has raised the policy rate to 5.2%, is effective against inflationary pressures but is pushing into a recession, with signals especially strong in the real estate and investment sectors.Canada's 2023 draft budget will be released today.USD/CAD Technical AnalysisOn the Daily the Bollinger Band indicator is in a downward trend. The MACD indicator in the positive area continues to decline and will soon reach zero level. Stochastic oscillator is rapidly falling to the minimum levels.Upon breakdown of the key support at 1.3600, we open short positions with the target at 1.3500. Stop-loss is placed at 1.3650.If the price remains above 1.3650, buy with Take Profit at 1.3750. Stop-loss is placed at 1.3600. 
USD/CHF is moving in different directions on Tuesday, consolidating after the previous decline and trading near the level of 0.9150.Bears" took the initiative at the beginning of the week, taking advantage of the improving situation in the financial system after the statement of First Citizens BancShares Inc. representative about purchasing a large part of the credit portfolio of the troubled SVB. The rhetoric of American bankers had a positive effect on the banking sector in Europe as well. Deutsche Bank shares are recovering fast after an unexpected collapse caused by market rumors.Investors are waiting for Christine Lagarde's speech today (13:15 GMT), expecting to hear news on the regulator's further monetary policy course. The ECB raised interest rates by 50 basis points in March and has signaled it will continue to fight inflation while the Fed is likely to take a wait-and-see approach.The Swiss authorities are considering the issue of prosecution of Credit Suisse Group AG top-managers, whose actions provoked the bank bankruptcy.On Wednesday the March index of economic expectations of Switzerland from ZEW will be released. It is expected further decline of the index from (-12.3) to (-18.9) p. There will also be published the Swiss National Bank's report for the first quarter.USD/CHF Technical analysisMajor Forex indicators are showing a downward trend. Bollinger Bands are confidently turned down, MACD has a sell signal. Stochastic Oscillator went down to the 20% level, but could not pass through the oversold area and went flat.After the pair has consolidated below the key support at 0.9100, we will open a short position with a target at 0.9000. Stop-loss is set at 0.9150.Breakout above resistance at 0.9200 will signal the return of buyers to the market. Take profit is at 0.9300. Protective stop is set at 0.9150. 
FOREX Fundamental analysis for EUR/USD on March 28The risks of the banking crisis force the Fed to backtrack and develop the idea of a "dovish" reversal. This lights a green light for the European currency and other risky assets.Of course, the threat of bankruptcy is forcing banks to tighten lending, which reduces lending and negatively affects economic performance. This increases recessionary risks. The difficulty is that these processes are going on all over the world. Not surprisingly, after the collapse of U.S. banks, the Credit Suisse story surfaced and rumors about the unreliability of Deutsche Bank emerged.The monetary authorities have to choose between fighting inflation and stabilizing the banking system. It is no coincidence that expectations of a peak rate from the Fed have fallen from 5.75% to 5.0% in a month. CME derivatives with a 62% probability predict a pause in monetary tightening at the May FOMC meeting and a rate cut of 100 basis points at once by the end of 2023.Expected Federal Funds Rate Trends at Fed MeetingsIt is noteworthy that only a day ago, the probability of such a scenario was 83%. Investors were reassured by Deutsche Bank reports and First Citizens Bank's statement that it was ready to acquire a controlling stake in the collapsed SVB. The news boosted the yields on treasuries and kept the dollar from falling. Moreover, the well-known in the financial world the manager of the largest fund Black Rock believes that the Fed will continue to raise rates and has no plans to reduce them this year.Indeed, if investors are once again fooled by the Fed's "dovish" reversal, EUR/USD will come under pressure. A similar pattern was seen in February when EUR/USD fell below 1.055 after Jerome Powell's hawkish speech in Congress.The dynamics of the supposed peaks of central banks ratesIt turns out that with good conditions for the growth of EUR/USD there are still risks of strengthening of the dollar. Forex trading at the end of March promises to be quite tense and we might say, nervous. If the pair fails to rise above 1.08, there will be a signal for short-term selling. If the "bulls" pass the resistance, the next target is 1.089.