FOREX Fundamental Analysis for November 7
Markets are ruled by cycles. The rapid growth of GDP is followed by rising interest rates and cooling of the economy, forcing central banks to soften monetary policy. And so it goes in cycles. Now, after a long and aggressive cycle of tightening financial conditions, the Fed is expected to make a "dovish" turn, and as it seemed to investors, the US labor market report, published last Friday, was a signal for this.
But, perhaps, experts overreacted emotionally to Non-farm Payrolls, predicting a 100 basis points reduction in the federal funds rate to 4.5% in 2024, although, of course, there were prerequisites for such a scenario. The Fed hinted at the end of the rate hike cycle, the Treasury limited bond issuance in Q4, and weak labor market statistics. But, at the same time, one should not draw conclusions from one report, and as the head of FRB Minneapolis Neel Kashkari believes, it is too early to celebrate the victory over inflation, and the Fed should continue its work. At the same time, his colleague, Lisa Cook, believes that at a rate of 5.5% inflation itself will gradually slide to the target of 2%
Risk buyers cooled down a bit, which dropped EUR/USD to 1.07. Investors want to wait for Jerome Powell's speech, hoping that the Fed chief will mark the main milestones of the regulator's monetary policy prospects.
But, in addition to the Central Bank's actions, the Middle East conflict as a potential driver of inflation acceleration has its imprint on EUR/USD dynamics. Of course, if the PCE returns to growth, the Fed will continue the cycle of monetary restriction, and support the dollar. At the same time, higher oil prices will put pressure on the Eurozone economy as an importer of black gold. At the same time, the United States, which exports oil, will receive additional preferences.
I do not think that Jerome Powell's upcoming speech will fully clarify the situation in forex currency trading. Most likely, we will have to wait for the US inflation report. But already now we can assume that the divergence of economic growth between the US and Eurozone will shrink. This will help EUR/USD recovery. In this regard, we will consider a pullback from the supports at 1.0695 and 1.0665 as a signal to buy EUR.