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EUR/USD: markets are wishful thinking

EUR/USD, currency, EUR/USD: markets are wishful thinking

FOREX Fundamental analysis on September 9, 2022

ECB rate hike by 75 basis points was not a surprise to markets. On the contrary, investors, in addition to monetary easing, wanted to hear the "hawkish" speech of Christine Lagarde, but the head of the regulator somehow hesitated, saying that she did not know how high the rate hike could go, but markets should not consider such steps of the Central Bank, as in September, the norm. Also, Mrs. Lagarde said that there will be more than two, but less than five cuts.

The European Central Bank and its governor were unable to express their position clearly. When will the regulator raise the rate or launch a QT program? Once again Christine Lagarde left in the direction of the United States, although logically she should have paid more attention to the Eurozone economy and the single currency rate.

Most likely, we would not have seen a powerful EUR/USD bullish breakaway, if the pair had not been helped by the American stock indices. The S&P 500 rebounded again from the support of 39000, despite the harsh rhetoric of the Fed, the possibility of raising the rate on September 21 by 75 basis points to 86% and other factors that strengthen the dollar.

Jerome Powell on Thursday reiterated the Fed's resolve, but the S&P 500 has started to recover. Investors are most likely waiting for an early release of the August inflation report to show a decline from 9.5% to 8.1%, which means that the Fed will not raise rates by more than 50 basis points.

Traders are buying expectations again, which actually coincides with the technical picture on the three Elder screens. I also suggested to open purchases above 0.995 and to increase the volumes of longs on breakthroughs of 1.000 and 1.002. I suppose that before the US inflation report release it is too early to speak about medium-term shorts. It is possible that EUR/USD could rise to 1.012 and even 1.018. The pair's fixation below 1.003 will be a signal for new sales.

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EUR/USD: while the dollar is warmed by rumors, the euro is strengthening
EUR/USD, currency, EUR/USD: while the dollar is warmed by rumors, the euro is strengthening FOREX Fundamental analysis for EUR/USD on May 21, 2024When there are no important events in the economic calendar, you need to listen to the statements of the Fed representatives. They unanimously declare that a reduction in rates is not yet expected. At the same time, the stability of the US economy, albeit slowing down, and the threat of new trade wars support demand for the dollar and allow the EUR/USD bears to counterattack periodically.According to Fed Deputy Chairman Philip Jefferson, the latest inflation report looks encouraging. At the same time, the official noted that it is too early to talk about a long-term decline in CPI and PCE. According to him, the acceleration of inflation indicators in the first quarter raises doubts about the sustainability of the disinflationary process. According to the calculations of the Federal Reserve, the basic index of personal consumption expenditures in January-April increased by 4.1%, which is considered too high.Loretta Mester of the Federal Reserve Bank of Cleveland rejects her own idea of three acts of monetary expansion in 2024, calling it inappropriate. Rafael Bostic from Atlanta believes that rates need to be kept at a high level for longer than planned. Michael Barr, the Fed's deputy chairman for supervision, believes that it is necessary to give time to restraining monetary policy so that it shows its effectiveness."Hawkish" statements by representatives of the monetary authorities allowed Treasury yields to rise for the third day in a row after a three-week decline. This brought the EUR/USD sellers to their senses.But if FOMC officials were not impressed by the April CPI report, why should it radically change forex currency trading? We know that the Fed is talking about the need to keep the federal funds rate at 5.5% due to the fact that financial conditions have weakened to their lowest levels since the start of monetary policy tightening in 2022. This means that aggressive restriction does not have a proper impact on the economy and inflation.If the Fed starts talking about lowering rates, this could further worsen the situation and lead to the resumption of the cycle of monetary restriction. This, in turn, may end in a recession, as in the 1970s, when the victory over inflation was prematurely announced.Markets are able to assess the prospects, so the US presidential election and the possible resumption of trade wars remain a more serious threat to EUR/USD. Donald Trump promises to impose duties on all imports from China in order to finance tax reduction programs. According to estimates by the Peterson Institute, this will cost the United States 1.8% of GDP, even without taking into account retaliatory measures from China. Low-income Americans, whose income will decrease by an average of 3.5%, will suffer the most damage.For defensive assets such as the US dollar, a new round of trade wars is good news. However, while EUR/USD is trading above 1.083, the sentiment remains bullish, and an appropriate forex trading strategy should be followed. Only a decrease in the pair below this level will create conditions for sales in the short term.EUR/USD Technical analysisEUR/USD is trying to maintain an uptrend. However, at the moment the pair is trading in a downward correction. To find profitable inputs for purchases, you should wait for the asset to decline to key support areas. These are: 1.0811 - 1.0802 and 1.0769 - 1.0756. When forming long positions from these zones, the maximum of May 16 becomes the target for buyers.If the price is fixed above the extreme of May 16, then the next target of the "bulls" for the euro becomes the "golden" zone 1.0945 - 1.0937.
May 21, 2024 Read
Forex analysis and forecast for USD/JPY for today, May 20, 2024
USD/JPY, currency, Forex analysis and forecast for USD/JPY for today, May 20, 2024 USD/JPY is in a sideways movement near the level of 155.70. The bulls are trying to develop an upward movement that began at the end of last week, when the pair retreated from local lows on May 6.After the release of important statistics from the United States and speeches by FOMC representatives, market participants are trying to predict the timing of a possible reduction in interest rates by the Fed. The main scenario assumes two acts of monetary expansion of 25 basis points each in 2024. The cycle will start in September or November.On Wednesday, data on orders for engineering products in Japan for March, as well as statistics on imports and exports for April, will be published. Analysts predict an acceleration in exports from 7.3% to 11.1% and imports from -4.9% to 9.0%. The trade balance for April is expected to show a deficit of¥339.5 billion after a deficit of ¥366.5 billion in the previous month. According to a survey of leading economists conducted by Reuters, most expect Japan's consumer price index to decline from 2.6% to 2.2% year-on-year in April, which will be the lowest in the last three months, but still exceeds the Bank of Japan's target level of 2.0%. If these forecasts are justified against the background of a significant reduction in GDP in the first quarter, the regulator may reconsider plans to tighten monetary policy, up to the rejection of rate hikes this year.The Bollinger Band indicator on the daily chart shows a sideways movement. The MACD is declining, keeping the sell signal Stochastic turned up near the middle of the working rangeWe will form purchases after a confident breakdown up to the level of 156.00. The target will be 157.00. We will set the stop loss at 155.50.A rebound from the resistance of 156.00 and a subsequent breakdown down to 155.50 may be a signal to sell the pair with a target of 154.50. In this case, we will place the stop loss at 156.00.
May 20, 2024 Read
EUR/USD: ECB has more room for maneuver than the Fed
EUR/USD, currency, EUR/USD: ECB has more room for maneuver than the Fed FOREX Fundamental analysis for EUR/USD on May 20, 2024The big thing starts with the little things. The largest rivers originate from small springs, and the downward trend of the dollar begins with the April employment report in the United States. This release was an important indication of the slowdown in the economy. Inflation statistics have confirmed that the Fed will not be able to raise rates. The only question is, when will the Fed start reducing them? The answer to it is very important for EUR/USD buyers. However, in any case, the road will not be easy for the couple.Despite the slowdown, the US economy remains quite strong. This means that it takes time for the dollar to weaken. According to Societe Generale, EUR/USD may remain in some kind of consolidation range for a long time, but an uptrend is inevitable. The dollar has no strong arguments for strengthening, euro investors believe. However, this is not entirely true. The Fed's battle with inflation is not over yet, and prices may start to rise again. Trade wars, geopolitics and the US presidential election can increase the demand for the greenback as a protective asset. But in the short term, the dollar doesn't look good.Can the Fed officials change something in the dynamics of EUR/USD, talking about the need to keep the rate at 5.5% for a long time, or the minutes of the FOMC meeting from April 30 – May 1? At that moment, inflation was rising for the third month in a row, and there was no question of a slowdown in the economy. Fed officials cannot reason otherwise if financial conditions have fallen to their lowest levels since 2022, when they began raising rates.The Fed corrects its own mistake. In the first quarter, he talked about a loosening of monetary policy amid rising CPI and PCE, which improved financial conditions and made it more difficult to fight inflation. In May, it's time to adjust the course. However, the rhetoric of FOMC officials does not mean much in itself. The dollar index, which grew by 5% until mid-April, in May shows the first monthly decline since the beginning of the year, losing positions among the forex currency indices. Investors believe facts more than words. The slowdown in the US economy is more important to them than the statements of the Fed representatives.At the same time, positive signals continue to come from other countries. German GDP grew more than expected in the first quarter, and business optimism reached a two-year high. Slowing inflation in the US makes the ECB more flexible. If the US CPI had continued to grow, the ECB might have thought three times before cutting rates in June and immediately in July. But now this issue remains open, and decisions will depend on statistical data.The report on salaries in the Eurozone plays an important role. In the fourth quarter, s/p growth slowed from 4.7% to 4.5%. However, stabilization of the indicator at the same level or its growth will force the ECB to be more cautious. This will be a tailwind for EUR/USD and will allow you to hold long positions open from 1.073 and 1.0835.EUR/USD Technical analysisThe short-term upward trend of EUR/USD continues. Today, the pair is growing, approaching the maximum for May 16. If buyers can gain a foothold above the extreme, then the pair will go to the Golden Zone in the range of 1.0945 - 1.0937.It is better to consider entering into new purchases of EUR/USD after the pair's corrective decline to the supports of (A) 1.0811 - 1.0802 and (B) 1.0769 - 1.0756.The signal of a trend change followed by the formation of opening sales will be a breakdown and consolidation of the price below the support (B).
May 20, 2024 Read
EUR/USD: Fed officials do not expect an early victory over inflation
EUR/USD, currency, EUR/USD: Fed officials do not expect an early victory over inflation FOREX Fundamental analysis for EUR/USD on May 17, 2024Evidence of the cooling of the United States economy continues to accumulate, but the Federal Reserve has not yet decided to reduce the federal funds rate. FOMC members John Williams Thomas Barkin and Loretta Mester say that the Central Bank will need more time to defeat inflation. These statements, along with a rapid increase in import prices and a good report on applications for unemployment benefits, led to a weakening of the EURUSD pair.As soon as the US dollar showed weakness, it immediately became the object of criticism. StoneX believes that the collapse of the dollar can occur for several reasons: an improvement in global risk appetite, the recovery of the Chinese economy and the hard course of the Bank of Japan. However, two of these three factors have come into question. Retail sales and fixed asset investments in China did not meet expectations, and hedge funds and asset managers, according to Bloomberg, used the April inflation report to buy dollars. The growth of the USDJPY exchange rate through currency correlation also affected the weakening of other assets.The appetite for risk is really increasing, as evidenced by the next records of stock indexes. However, the market often takes wishful thinking for granted. At the end of 2023, after the Fed forecast a rate cut at three meetings in 2024, investors expected six acts of easing.Now the situation is repeating itself. Weak data on the labor market, retail sales and industrial production have given rise to rumors that the July meeting of the Fed may present a surprise. Given that the Central Bank will have two more employment and inflation reports before that time, the likelihood of a rate cut is growing.Nevertheless, with 175 thousand new jobs and unemployment at 3.9%, the economy can hardly be called weak. Retail sales are rising by 3.5%, which makes it unlikely that the 2% inflation target will be reached soon. The Fed will probably have to wait until inflation drops to this value. Nordea predicts that rates will be lowered in December, rather than in September, which may lead to a drop in the EUR/USD pair to 1.07 by the end of July.The key question for EURUSD is whether the US economy will continue to cool down. If so, Treasury yields will fall, increasing the chances of the Fed easing monetary policy in July, which will lead to a drop in the dollar in forex currency trading. Otherwise, positive macro statistics will bring the greenback back to life.Investors are closing positions and going into standby mode, which may lead to a correction and consolidation of the EURUSD. While these boundaries are not defined, it is possible to use bounces from the support levels of 1.0835 and 1.08 to buy the pair.EUR/USD continues to decline for the second day in a row, correcting after strengthening at the beginning of the week. Today, the pair is trading at 1.0862. In the morning, traders did not show much activity, as they are waiting for the release of inflation data in the Eurozone.Consumer Price Index (CPI) The US grew by 3.4% in April, which is lower than the March strengthening of 3.5%. The base indicator excluding food and energy prices was 3.6% (YoY), which is lower than the previous value of 3.8%, but fully in line with market expectations. Despite the fact that inflation is still well above the 2% target, the data put pressure on the dollar. The decrease in CPI increased market expectations about a possible easing of the monetary policy of the Federal Reserve System (Fed) in the second half of the year.On Thursday, data on initial applications for unemployment benefits in the United States were also published. The number of applications for the week increased to 222 thousand, which exceeded forecasts. The indicator for the previous week was revised upward to 232 thousand. Despite the negative background, dollar buyers were able to take the initiative and ended Thursday's trading session on a "green" wave. The dollar was supported by comments from Fed representatives. Neil Kashkari, President of the Federal Reserve Bank of Minneapolis, expressed doubts that the current monetary policy has a sufficient impact on inflation and called for keeping rates at the current level for several more months. The head of the Federal Reserve Bank of New York, John Williams, noted that one positive inflation report is not enough to neutralize the negative data of previous months, so do not expect an early rate cut from the Fed.Today, traders' attention is focused on inflation data in the Eurozone. The European consumer price index is expected to remain at 2.4% in April, while the base index will be 2.7%. If the forecasts are confirmed, this will be another indication that inflation in the EU countries is gradually approaching the target level of 2%. This could allow the European Central Bank to consider cutting rates as early as June. Thus, the pressure on the euro may increase not only due to the recovery of the dollar, but also due to the high probability that the easing of the ECB's policy will occur earlier than in the United States.
May 17, 2024 Read
EUR/USD: buyers' target at 1.108
EUR/USD, currency, EUR/USD: buyers\' target at 1.108 FOREX Fundamental analysis for EUR/USD on May 16, 2024The EURUSD downtrend has been interrupted after all, and this is good news for risk buyers. However, the pair's transition to strengthening will be much more difficult than it would have been in the first half of May, since the slowdown in American inflation has already been taken into account by traders. In short, it is not the easiest time to trade forex.The decline in consumer price growth in April to 3.4% and core inflation to 3.6% was good news for both the Fed and financial markets. Although, of course, the Fed will not make a decision based on just one report. Moreover, the option of tightening monetary policy cannot be ruled out. The last time the Fed did this was in July 2023, raising rates to 5.5%, the highest level in more than two decades.Based on the PPI and CPI data, it is possible to calculate the personal consumption expenditure index (PCE), the most important indicator of inflation for the Fed. According to the latest figures, PCE will increase by 0.2% per month in April. This will keep the annual rate at 2.8% or slightly reduce it to 2.7%. It's too early to talk about winning over high prices, but you can relax a little.The Fed will probably need a few more reports before starting to ease monetary policy. Derivatives show a 73% chance of a rate cut in September and a 94% chance of two cycles of monetary expansion before the end of 2024. Will there be a third one? This depends on a further slowdown in inflation and a slowdown in the economy.The first comments from FOMC officials after the release of the CPI report indicate that the Central Bank will need more time to make decisions. Neil Kashkari from Minneapolis believes that we need to wait to determine exactly where inflation is heading. Austen Goolsby from Chicago is demanding more data for monetary policy adjustment decisions.The Fed is easy to understand. It is unknown whether the cooling of the American economy will continue or after a slight drawdown, it will return to growth. In addition, the strengthening of the commodity index to its highest value in more than a year increases the risks of a new round of inflation.The idea of changing the EURUSD downtrend is based on the assumption of reducing the divergence in economic growth in the United States and the Eurozone. However, not everyone shares this point of view. The European Union maintains the forecast for the GDP of the currency bloc in 2024 at 0.8% and reduces it from 1.5% to 1.4% in 2025.In general, the EURUSD recovery hypothesis has a right to exist, but the bulls face serious obstacles. Pullbacks and consolidations are ahead, and it will be increasingly difficult to keep purchases formed from 1,073. In order not to receive losses, traders must clearly control the loading of the deposit. But the target of 1.108 is still relevant.EUR/USD Technical analysisOn Wednesday, EUR/USD continued to develop a short-term uptrend, which led to testing of the target area of 1.0878 - 1.0853. Today, buyers will try to break through this area and gain a foothold higher. If successful, the next target of the bulls will be the Golden Zone within 1.0945 - 1.0937.I suggest considering the entry into EUR/USD purchases on a corrective decline from the support areas 1.0811 - 1.0802 and 1.0769 - 1.0756. The goal is the maximum of today.
May 16, 2024 Read
DXY: the US dollar index has been declining all week
US Dollar Index, index, DXY: the US dollar index has been declining all week The trading idea for the US Dollar Index (DXY) on May 15, 2024The US dollar index (DXY) continues to fall for the third day in a row, developing the downward momentum that formed earlier this week. At the moment, the asset is trading at 104.75, ignoring both the growth of industrial inflation in the United States and the "hawkish" statements by the head of the Federal Reserve System (FRS) Jerome Powell.Yesterday, traders drew attention to the data on industrial inflation in the United States. According to a report by the U.S. Bureau of Labor Statistics, the producer price index (PPI) rose 0.5% in April compared to the previous month, significantly exceeding expectations of 0.3%. Annual data on the general and basic producer price indices also exceeded forecasts and amounted to 2.2% and 2.4%, respectively. Economists assume that the acceleration of industrial inflation caused by rising costs of production resources will eventually affect the prices of the consumer basket, which will lead to an increase in overall inflation. According to the latest survey by the Federal Reserve Bank of New York, most economists expect that the average annual inflation in the United States will be 3.3% in a year, instead of the previous forecast of 3%.Also yesterday, Fed Chairman Jerome Powell spoke at the general meeting of the Association of Foreign Bankers in Amsterdam, where he stressed that the economy had shown good results due to an extremely strong labor market, which, in turn, limits the regulator's ability to ease monetary policy. According to Powell, the Fed is no longer so confident that inflation will soon fall to the target level.The April Consumer Price Index (CPI) report is expected to be published today at 12:30 GMT, which will help to more accurately assess the prospects for the Fed's monetary policy. Forecasts suggest a decrease in annual inflation in the United States from 3.5% to 3.4%. If the actual data turns out to be the same or higher, the dollar's growth may begin with renewed vigor.We suggest including a DXY order in the trader's trading plan:Sell-Stop 104.50Take-Profit 103.00Stop-Loss 105.20
May 15, 2024 Read
EUR/USD: demand for risky assets sets records
EUR/USD, currency, EUR/USD: demand for risky assets sets records FOREX Fundamental analysis for EUR/USD on May 15, 2024No matter what statistics come out, investors will always hear what they would like to hear. Instead of reports of a 0.5% (mom) increase in producer prices in April, they talk about a 0.1% decrease in March. Instead of Jerome Powell's assurances about the extremely low probability of a rate hike in 2024, they heard that the Fed would be patient. Claes Knoth, head of the Bank of the Netherlands, announced a possible acceleration of inflation in Europe, and this, for fear of not being in time, pushed players to urgent purchases and sent the Nasdaq Composite to new records, and the EURUSD to five-week highs.According to an analysis by S&P Global Investment Manager Index, risk appetite has reached its highest level since the end of 2021. A survey of asset managers by Bank of America showed that the market has seen the maximum number of "bulls" over the past 2.5 years. Unsurprisingly, the risks of a reversal in the euro are now at their highest since February, and the weekly indicator of the US dollar has fallen below zero for the first time in two months. In such circumstances, safe haven assets are not popular, and investors are starting to look for other methods of forex trading.The greenback was not helped by Jerome Powell's statement that he was less confident in a further slowdown in price growth, and that it was necessary to wait for developments while carefully monitoring the dynamics of inflation. On the contrary, his remarks that the rates are already high enough to weaken demand only provoked the EURUSD bulls. A prolonged hold on rates at 5.5% could lead to a further slowdown in the US economy.In fact, overdue credit card payments in the United States have reached their highest level in many years, and recent economic data is more upsetting than encouraging. The United States stands in stark contrast to the Eurozone, where the economic surprise index remains stable. Reducing the gap in economic growth between the Old and the New World is becoming an additional incentive for buyers of EURUSD.The new US tariffs on $18 billion worth of Chinese goods announced by the White House do not help the dollar, although they may be a harbinger of trade wars. Customs duties on electric vehicles increased from 25% to 100%, on semiconductors and solar panels — from 25% to 50%, on steel and aluminum products — from 7.5% to 25%. Interestingly, Biden's team does not believe that such measures will lead to an acceleration of inflation, unlike Trump's intentions to impose duties of 10% on all imported products. U.S. Treasury Secretary Janet Yellen warned that China could respond. And Beijing does not deny this possibilityIn short, the thirst for profit overcomes the risks of trade wars, and Jerome Powell's words only fueled interest in the April consumer price report in the United States. The reaction to it may be completely different than to the output of PPI. If the indicator exceeds forecasts, this may reduce the fuse of the EURUSD bulls and force them to take profits, which, in turn, will cause a corrective decline. But if inflation slows down, it will only strengthen interest in the euro and push the pair to the $1.108 mark.EUR/USD Technical AnalysisYesterday, EUR/USD was on the news on US manufacturing inflation (PPI). updated the maximum of May 3. The next target of buyers in the further development of the short-term uptrend is the target area of 1.0878 - 1.0853. If the designated zone is also broken up, then the asset will rush to the golden zone in the range of 1.0945 - 1.0937.It is advantageous to look for new purchases of the instrument on a downward correction, starting from strong support levels of the regions 1.0744 - 1.0735 and 1.0702 - 1.0689. The first target for long positions will be today's maximum.
May 15, 2024 Read
EUR/USD: trend change signals are getting stronger
EUR/USD, currency, EUR/USD: trend change signals are getting stronger FOREX Fundamental analysis for EUR/USD on May 14, 2024Any economy is cyclical. For a long time, rising US inflation has kept rates high and supported the US dollar. However, it also reduced the real incomes of citizens and slowed down GDP growth. As soon as signs of a slowdown began to appear in the economy, optimism revived in the market. Investors are again waiting for a rate cut by the Federal Reserve System (FRS), as it was at the beginning of the year. This is a bad sign for the EURUSD bears.Goldman Sachs believes that in forex currency trading, before the release of the consumer price report in the United States, FOMO reigns - the fear of missing the opportunity to enter or the fear of lost profits. Investors are ready to buy stocks and bonds like hot cakes, which could lead to the rise of the S&P 500 index to new records and lower bond yields. This is the opposite of what happened before mid-April. In the second month of spring, the stock index showed its worst result since autumn, and bond rates rose to November highs, which supported the greenback through currency correlation.Market trends have changed dramatically, and the key to this is that after three months of growth in the consumer price index (CPI), investors expect it to slow down. This will lead to the resumption of the idea of large-scale monetary expansion by the Fed, in contrast to the two monetary policy easing acts expected by derivatives in 2024.Even the expectation of big steps by the European Central Bank (ECB) does not help the sellers of EURUSD. Goldman Sachs and Bloomberg forecast a 75 basis point reduction in the deposit rate to 3.25% by the end of December. Investors are scared by the divergence in monetary policy, which can lead to problems in the Eurozone due to the rising cost of imports, especially for an economy with high energy dependence, such as the European one.However, I will not agree with this. The problem of energy dependence would become acute if gas prices were as high as in 2022. At the moment, they are more than 10 times lower than they were then. The ECB has long hinted at a reduction in the deposit rate, so investors have already taken this aspect into account and are not worried about the weakness of the economy. Well, due to the fact that the factor of monetary policy easing has already been taken into account in prices, you should not expect a sharp decline in the EURUSD at the output of the actual data.In addition, high inflation in the United States constrains the growth of the American economy, while low inflation levels in the Eurozone stimulate it. The labor market remains strong, and real wages are rising, which contributes to the expansion of GDP. It is no coincidence that Bloomberg experts have raised the forecast for the Eurozone economy to 0.7% in 2024.It can be said that the hypothesis of a change in the direction of the EURUSD trend, expressed after the release of employment data in the United States, is beginning to be implemented. The slowdown in the April producer and consumer price indices in the United States will strengthen purchases of EURUSD formed from $1,073. We consider $1,108 as the nearest target.
May 14, 2024 Read
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