Fundamental analysis FOREX for March 20, 2023
Three large credit institutions in the United States declared bankruptcy in March and First Republic bank needs urgent financial aid. This indicates the serious problems of the financial system, and the problems are global, since the banking crisis is spreading around the world very quickly. Credit Suisse of Switzerland went into a downward spiral, but it will be bought by the largest UBS, but only under the financial guarantees of the Government and the National Bank of Switzerland. All this is reflected in forex trading and, in particular, in the dynamics of EUR/USD, which returned to strengthening at the end of the week.
Meanwhile, the OSER is calling on the Fed to raise rates and considers the ECB's 50-basis-point monetary tightening to be absolutely the right decision. In this regard, the markets have returned to the belief that the Fed will raise rates by 25 basis points on March 21-22, although last week it was expected that the US regulator would pause in tightening monetary policy after the banking sector crisis.
Assumed dynamics of the federal funds rate
It should be noted that two opposing views are now strong in the market. A part of investors believe that the recession of the US economy is much closer than expected, so the Fed's "dovish" U-turn will come as soon as this year. Another part believes the regulator will raise the rate to 5.5%, or even 6%, and the U.S. economy, despite problems in the banking sector, will avoid recession.
Forecasts for the U.S. economy
Nevertheless, investors are gradually moving away from forex trading on the news and switching to monetary policy divergence and macroeconomic reports. At the moment the ECB's monetary restriction rate is higher than the Fed's, which is a positive factor for EUR/USD, so we continue to buy the pair towards 1.0755 and 1.0825.