EUR/USD Trading idea for September 1, 2023
Artem_deevcentral banks are in no hurry to raise rates, although inflation, for the most part, is in no hurry to decline, and weaker economies lose out from this. So, contrary to Bloomberg forecasts, the Eurozone CPI grew not by 5.1%, but by 5.3%. Nevertheless, EUR/USD and forex crosses with the euro sharply went down, blocking all the buyers' achievements for Wednesday.
In the United States, the head of the Federal Reserve Bank of Atlanta, R. Bostic, made a "pigeon" speech, believing that the rates are already high enough and there is no point in injuring the economy with an additional act of monetary restriction. The same opinion is shared by Hugh Pill, chief economist of the Bank of England, and Isabel Schnabel, a member of the ECB Governing Council, who said that raising rates would cause great damage to the economies of the UK and the Euroblock. It is noteworthy that Isabel Schnabel is one of the most active "hawks" of the ECB. In other words, in the US, the UK, and the Eurozone, voices of opponents of tightening financial conditions are increasingly being heard, which, of course, will be taken into account at the meetings of regulators.
In such a situation, the dollar feels more confident than sterling or the euro. Moreover, on the eve of its strengthening, American statistics supported it. Household spending in July increased by 0.8% (mom), and this is the best indicator since the beginning of the year. The index of personal consumption expenditures rose by 0.2% (mom). Of course, the American economy is signaling a slowdown, but it is unlikely to plunge into recession. This is much better than the situation in the Eurozone with the expanding risks of stagflation.
Rumors that both the Fed and the ECB are ready to complete the cycle of monetary restriction, as well as the divergence of economic growth between the US and the Eurozone, are beneficial to buyers of the dollar. Bloomberg lowered the EUR/USD forecast for the end of the year from 1.12 to 1.10. JP Morgan and Bank of America see the pair at 1.05, BNP Paribas – at 1.02.
But, it should be remembered that the main "bearish" factors have already been taken into account by EUR/USD quotes. The deterioration of US economic indicators will bring back to the market the idea of an approaching recession and the associated "dovish" reversal of the Fed. But if the situation does not change dramatically, then the dollar has a good chance of strengthening. The release of Non-farm Payrolls will clarify the situation in many ways
Bloomberg expects employment at the level of 170 thousand places. This is the lowest value of the indicator since January 2021. If the statistics disappoint investors, EUR/USD will return to 1.09. If the report is stronger, the pair will go to 1.08.