FOREX Fundamental analysis for EUR/USD on July 25, 2024
The recent rise in the EUR/USD exchange rate from support at 1.825-1.0835 was triggered by rumors of an economic cooling in the United States and the beginning of Kamala Harris's "honeymoon". However, positive US PMI data and a drop in stock indices through currency correlation returned the advantage to greenback buyers. Investors are now considering whether to abandon Trump trade, fearing a recession, and are waiting for GDP data for the second quarter.
It should be noted that Kamala Harris differs from Joe Biden for the better, since with her entry into the election race, the gap between the candidates from the Republican and Democratic parties has narrowed. A Reuters/Ipsos poll showed Harris beating Trump by 2 percentage points. The Democrats' victory in the White House may ease political pressure on the Fed, which will allow the regulator to follow the chosen course of monetary policy
Former head of the Federal Reserve Bank of New York William Dudley believes that rate cuts should begin as early as July to avoid a recession. The growth of the yield differential indicates market expectations regarding aggressive easing of the Fed's policy.
Rumors of a recession, the weakening of the influence of Trump trade and expectations of a rate cut increased confidence in monetary expansion in September, which stabilized EUR/USD, despite weak European statistics. Disappointing data on business activity in Europe has become a cold shower for market optimists.
Things are better in the USA. The composite PMI index has peaked since April 2022, and Bloomberg forecasts GDP growth of 2% in the second quarter. This calls into question the need for aggressive monetary expansion by the Fed and supports the "bears" on EUR/USD, especially given the increased demand for the dollar as a safe haven currency.
The drop in the value of Tesla and Alphabet shares and the decline of the S&P 500 by $768 billion increased demand for the dollar. This broke a 356-day streak without the index falling by more than 2%, which was the worst day since December 2022.
The alignment of the candidates' positions in the US presidential race returns investors' attention to data affecting the Fed's monetary policy. The risks of a fall in EUR/USD remain, but the potential for a pullback is limited. A consolidation range of 1.08-1.095 is probably forming. A return of the pair above 1.0865 will increase purchases opened in the area of 1.0825-1.0835.