FOREX Fundamental analysis for EUR/USD on July 10, 2024
The markets ignored Jerome Powell's speech. On the eve of his address to the Senate Banking Committee, investment fund managers actively increased long positions on U.S. Treasury bonds, hoping for signals of a reduction in the federal funds rate. However, Powell said that more data is needed to change the course of monetary policy, which led to the fixation of positions, lower prices and an increase in the yield of treasuries. As a result, the EURUSD pair remains in place, although Powell still gave a signal, albeit not quite explicit.
Those who listened attentively caught the message of the head of the Federal Reserve. Powell took a cautious but important step, bringing the Fed closer to easing monetary policy. He noted that employment is no longer a source of inflationary pressure. This is important, as the FOMC previously called an overheated labor market the main risk for lower prices. Interestingly, US Treasury Secretary Janet Yellen repeated this idea almost verbatim, saying that the labor market no longer contributes to inflation.
Powell acknowledged that the employment sector is cooling, mentioning bilateral risks. The average employment growth in three months is 177 thousand, which is the worst indicator since the beginning of the pandemic. Unemployment has been rising for the third month in a row, and wage growth has slowed to 3.9%, which is the lowest level since 2021.
Previously, the Fed actively fought inflation, but now it has to find a compromise. Delaying rate cuts could lead to a recession, and easing monetary policy too early could bring back high inflation. Powell's words that high prices are not the only risk indicate a change in the Fed's thinking. It's time to lower the stakes.
Unfortunately, the markets found Powell's speech insufficiently "dovish". He did not give clear signals about the Fed's future actions, saying more data was needed. This disappointed investors, which led to the closure of long positions on treasury bonds and an increase in their yields. The probability of monetary expansion starting in September decreased from 78% to 73%. The US dollar remained in place, instead of the expected fall, and it seems that investors will have to adjust forex trading strategies in the very near future.
Traders decided to wait for the data on the consumer price index (CPI) for June. Only progress in reducing inflation can inspire the EURUSD bulls to launch new attacks. A breakout of resistance at 1.0835 will be a signal to strengthen long positions towards the targets at 1.09 and 1.0935. On the contrary, a drop below 1.0805 will make buyers nervous.
EUR/USD Technical analysis
EUR/USD is trading in a short-term uptrend. The target of buyers is the target zone 1.0943 - 1.0918. We will consider entering long positions after a downward correction to strong support areas (A) 1.0761 - 1.0752 and (B) 1.0719 - 1.0706. Here, to open buy deals, wait for the formation of a reversal pattern. The first target for buyers will be the 1.0799 level.
To generate sales, it is required to break through the 1.0706 level and consolidate the price below. In this case, the direction of the short-term trend will change to a downward one.