FOREX Fundamental analysis on September 23, 2022
Central banks around the world are trying to support their national monetary units in different ways. The Bank of Japan has traditionally intervened in the currency, which, it should be said, has never brought the desired result. Other central banks are raising borrowing costs. Alas, the dollar is still ahead of the curve.
Yesterday the Swiss National Bank raised its rate and took it out of negative territory, the Bank of England and Sweden also announced a monetary restriction, which raised yields across the board. Rates of treasuries hit a new record and strengthened the dollar's position in forex trading. In other words, attempts of the world regulators to strengthen their currencies lead to a strengthening of the greenback.
Rising U.S. bond yields help the dollar in two ways. Firstly, U.S. assets become more interesting to investors, which attracts capital to the United States. Second, stock indices and risky assets fall while defensive instruments rise. Moreover, experts believe that recession risks are not fully accounted for by security prices. So far, the S&P 500 is wallowing solely on the Fed's tightening of monetary policy. The effect of corporate earnings cuts is yet to come. The stock markets have room to fall and so does EUR/USD.
At the same time, the dollar's lead over other forex currency indexes brings problems for the world economy, as many countries have a mountain of dollar debts that are growing every day. In an attempt to stem inflation, central banks are raising interest rates and driving their economies into recession. The global recession is sure to affect the United States, but the Fed is not particularly concerned. The Fed has set itself a goal of getting inflation back to the 2% target, and it is striving to meet that goal, no matter what.
The disconnect between the world's central banks is particularly noticeable in this regard. After the pandemic there is a deglobalization of the world system, which disconnects the opponents of the dollar, so single attempts to intervene, following the example of the Bank of Japan, can only have a short-term effect.
EUR/USD is doomed to decline. A break of the September low at 0.9810 will allow the pair to work out the targets at 0.97 and 0.95.
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