FOREX Fundamental Analysis for December 11, 2023
It seems that the time when good economic news supported the markets is coming back, although it was the opposite throughout the past year. The November labor market report showing 199k new jobs, wage growth to 0.4% and unemployment falling to 3.7% helped the S&P 500 to stay above 4600, which through currency correlation helped EUR/USD buyers.
The statistics reinforced investors' belief that the Fed can bring inflation back to the 2% mark while avoiding a recessionary economy. But here's the question - when will the regulator decide on monetary expansion?
In 2006-2007, the dovish reversal began 15 months after the last rate hike, and in 1989 - after 4 months.
Of course, at some point the Fed will move to ease financial conditions. But it is one thing to cut rates when there are risks of recession and quite another when there are no such risks. In the second case, there is no hurry, so expectations of monetary expansion by 125 basis points in 2024 may remain expectations, and the regulator will limit itself to 1-2 rate cuts. The probability of the first cut in March has already fallen from 70% to 44%.
But the S&P 500 has its own way. Buyers are driven by greed. According to the consensus analyst forecast in 2024, the index will reach an all-time high of 4808. So, we should not be surprised by investors' desire to get into the upward-bound asset faster.
But market participants forget about the Fed again. It is unlikely that the Fed will be in a hurry with a dovish reversal, and most likely, Jerome Powell will tell about it in December. In our view, the dollar has room to grow, and we will step up EUR/USD selling at every opportunity