EUR/USD: "pigeons" got their wings clipped again

EUR/USD, currency, EUR/USD: \

FOREX Fundamental analysis for EUR/USD on November 3, 2022

The Federal Reserve rate was raised by 75 basis points, which buyers of risky assets managed to take advantage of. However, a few minutes later, Jerome Powell shocked the pigeons by saying that the regulator was not planning to abandon its tight monetary policy course. Moreover, the rate targets originally outlined by the FOMC seem to be insufficient at the moment.

The head of the Fed believes that it is premature to think about a pause in monetary restriction. Yes, the regulator may reduce the rate hike from the next meeting, but only to analyze the effectiveness of the measures taken to combat inflation. In all likelihood, the federal funds rate will rise to 5%.

For the third time in a row, hopes for a dovish reversal have turned to losses for traders.

Increased divergence between the monetary policy of the Fed and other Central Banks will make the dollar the most sought-after currency in the medium term. Now, an optimistic statistic on the U.S. labor market is needed to keep the EUR/USD bears calm.

The "hawkish" rhetoric of the Fed has confirmed the stability of the EUR/USD downtrend. We sell the pair on a pullback with targets of 0.97 and 0.95.


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EURUSD: it's too early for the Fed to celebrate victory over inflation:
EUR/USD, currency, EURUSD: it\'s too early for the Fed to celebrate victory over inflation: FOREX Fundamental analysis for EUR/USD on June 14, 2024The Federal Reserve System (Fed) refuses to celebrate the victory over inflation. The risks of political instability in France and the deterioration of the country's financial system also negatively affect the EURUSD rate. Despite the rally in stock indexes, lower Treasury yields and slowing inflation in the United States, the regional currency remains under pressure. This is reminiscent of the old principle of the market – not to go against the Fed.The Fed's position is clear. In the 70s of the last century, the premature celebration of the victory over inflation led to a double recession, and no one wants to repeat this mistake. It is no coincidence that Jerome Powell talks everywhere about the conservatism of the Federal Reserve.At the same time, the recent FOMC forecasts already look outdated against the background of an almost unchanged base CPI and a reduction in PPI in May. Nomura estimates that the personal consumption expenditure index (PCE) will fall to 0.113% on a monthly basis, which implies a drop in PCE below the target level of 2% per annum. Three- and six-month consumer price metrics confirm the development of disinflation.Potential implications for the U.S. economyKeeping the federal funds rate at 5.5% may have a negative impact on both the economy and US stock indices, and through currency correlation on risky assets. For stock markets, bad news from macroeconomic indicators becomes good, but this trend cannot continue indefinitely. The correction of the S&P 500 can cause an increase in demand for the dollar as a protective toolPolitical instability in EuropePolitical instability in Europe is exacerbating the EURUSD situation. France is not Greece, its finances are in better condition than those of the troubled Eurozone countries, but the situation is getting worse, as evidenced by the downgrade of the S&P Global credit rating. The reluctance of the French to tighten their belts and the possible rise to power of eurosceptics may worsen the situation.Forecasts and trading strategyRising government spending, budget deficits and public debt in France could lead to conflict with the European Union, French bond sales and rising yields, which would hit Europe's largest banking system. Paris should take into account the lessons of London, where in 2022 the intention of the Liz Truss government to reduce taxes without adequate financing led to the collapse of bonds and the pound. A similar scenario may develop for EURUSD, despite the positive signals from the United States.If the market is not moving in the expected direction, it is likely to head in the opposite direction – a well-known postulate of forex currency trading. The rise of the EURUSD against the background of a slowdown in the American CPI resembles a "dead cat jump". We keep short positions open in the area of 1.0835-1.085 and increase them on upward pullbacks. The targets remain at 1.06 and 1.05 levels.
Jun 14, 2024 Read
EUR/USD: market is waiting for a Fed rate cut
EUR/USD, currency, EUR/USD: market is waiting for a Fed rate cut FOREX Fundamental analysis for EUR/USD on June 13, 2024The Federal Reserve System (Fed) in its updated forecasts points to one reduction in the federal funds rate in 2024, urging "trust, but check." The market, responding to the same principle, continues to believe in two acts of monetary expansion after the release of the May inflation report in the United States. In an environment where monetary policy depends on data, statistics become the main factor of influence. However, this time the market reacted unexpectedly, causing fluctuations in the EURUSD rate.Reaction to inflation dataThe absence of an increase in core inflation with an increase in consumer prices by 0.16% (mom) has energized the bulls. The probability of a federal funds rate cut in September jumped to 80%, and the chances of two acts of monetary expansion in 2024 jumped to 69%. As a result, the yield on U.S. Treasury bonds fell sharply, dragging the dollar with it.Jerome Powell's comments and updated FOMC forecastsAt yesterday's press conference, Jerome Powell noted that the Fed has made some progress in combating inflation and called the May report a step in the right direction, but stressed the need to generate further confirmation signals. Despite this, the markets reacted quite violently to the updated FOMC rate forecast.Four FOMC members do not expect monetary policy easing in 2024. Seven members supported one act of monetary expansion, and eight supported two. In the spring, it was about two and five members, respectively. Previously, ten members of the Committee had seen at least three cuts in the federal funds rate. Now their views have changed, which allowed the EURUSD bears to partially recover from the blows inflicted by the inflation statistics for May.Market expectations and the Fed's cautionAlthough the chances of a rate cut in September fell to 62%, derivatives still point to a 62% probability of two acts of monetary expansion in 2024. Investors believe that the Fed's estimates are too conservative and that the Fed may be overly cautious.Unlike other world central banks, which have already lowered rates or expressed confidence in achieving inflation goals, the Fed is in no hurry to ease monetary policy. This is due to strong US GDP growth, which is holding back the Fed's change of course. The US financial system is less dependent on bank lending than in the past, and many homeowners are protected from aggressive monetary restriction in 2022-2023 due to fixed mortgage rates.Historical lessons and current strategyNevertheless, the Fed must be prudent and careful to avoid the mistakes of the 70s of the last century, when the premature declaration of victory over inflation led to a double recession. This caution helped to avoid a catastrophic fall in the dollar. After the slowdown in CPI growth and the FOMC forecast for one rate cut, our forex trading strategy presupposes the sale of EURUSD on strengthening. Those who took advantage of this advice were able to open short positions in the area of 1.0835-1.085. We continue to hold the shorts.EUR/USD Technical analysisAfter the Fed's two-day interest rate meeting, the US dollar weakened against most world currencies. This allowed EUR/USD to strengthen towards the resistance area (B) 1.0858 - 1.0845.But here the pair met resistance from sellers and failed to break above the key level.. This suggests that today the downward short-term trend remains in force. We will consider selling the pair on an upward correction with the nearest target at 1.0788. The second target will be at least on June 11.To change the trend and switch to buying EUR/USD, it is necessary to break through the 1.0858 level and consolidate higher. In this case, the direction of the short-term trend will change to an upward one with a target in the area of 1.0996 - 1.0971.
Jun 13, 2024 Read
EUR/USD: this summer may be hot for the euro
EUR/USD, currency, EUR/USD: this summer may be hot for the euro FOREX Fundamental analysis for EUR/USD on June 11, 2024Act first, then evaluate. This is the reality of forex currency trading – analyze actions after, not before. As for the news, a few days later it is possible to assess more objectively the impressive US employment data for May and the sale of European assets against the background of news about the snap elections in France. Perhaps Emmanuel Macron's decision will be justified, and the slowdown in inflation in the United States will give EUR/USD buyers the opportunity to recover. But all this does not become clear immediately.The euro bounced back from five-week lows as US inflation data and the Fed's rate forecast look serious enough to close some positions. Hedge funds became pure euro bulls for the first time since August and suffered losses due to their confidence.Few people want to make hasty decisions now, wondering if American inflation will slow down. This will definitely affect the Fed's forecasts. If the growth rate of consumer prices decreases, officials are likely to be inclined to two acts of monetary expansion before the end of 2024. If inflation slows down, we will see only one rate cut. In this case, the chances of a rate cut in September will drop sharply, and the market will begin to doubt whether the Fed will ease monetary policy at all this year.With a consistently strong economy and inflation, the best solution for the Fed is to do nothing at all. Judging by the rhetoric of FOMC officials, the Fed decided to take a break in the summer to get more data to make important decisions. Political tensions are also making the world's regulators more patient. Few people want to lower the stakes before the elections, so as not to be accused of supporting the current government.In the UK, France and the USA, the political situation can change at any moment. The victory of Labour over the Conservatives is perceived as a boon for the pound, while the rise of eurosceptics to power in France causes concern among investors. If they form a government, their spending program could lead to conflict between Paris and Brussels. According to Pictet Wealth Management, such a scenario would provoke an economic catastrophe for France. It is not surprising that the volatility of currency pairs with the euro has increased sharply, and the risks of a reversal for EUR/USD have decreased, which indicates a "bearish" market sentiment.RBC Capital Markets forecasts a decline in the main currency pair to 1.05 in the third quarter, and Union Bancaire Privee believes that the single currency will be under pressure in the next three weeks. Credit Agricole estimates that further widening of the French and German bond yield spreads will lead to the sale of EUR/USD.However, to begin with, the main currency pair needs to pass a test in the form of data on American inflation and the Fed meeting. The acceleration of consumer price growth will be the catalyst for the fall of EUR/USD to 1.06. Their slowdown will allow the euro to return to the $1.08 mark. Let's wait and see soon.
Jun 11, 2024 Read
EUR/USD: The European currency gets a double whammy
EUR/USD, currency, EUR/USD: The European currency gets a double whammy FOREX Fundamental analysis for EUR/USD on June 10, 2024Forex currency trading is based on economic factors, but at the moment it is political events that have had a decisive impact on the euro exchange rate. The strong report on the US labor market for May turned out to be a shock for buyers of EUR/USD. The impressive increase in employment by 272,000, the retention of unemployment at 4% for 30 months and steady wage growth indicate the strength of the US economy. But the trouble does not come alone: the dissolution of the National Assembly (Parliament) in France and the appointment of the first snap parliamentary elections since 1997 have aggravated the situation for the euro.Emmanuel Macron's decision to schedule elections for June 30 and July 7 was controversial, but the French president said he could not help but react to his party's defeat in the European elections. The Renaissance party, which relied on European unity, received half as many votes as the National Association with its 31%. Eurosceptics have skillfully taken advantage of the discontent of the French due to inflation, security problems and migration.The situation is reminiscent of 2012, when the fear of Marine Le Pen coming to power was one of the key factors in the fall of the euro from $1.33 to $1.21. Newly emerging political risks and threats of Eurozone fragmentation could lead EUR/USD to parity, especially if the Fed does not lower the federal funds rate in 2024. The chances of this have increased after an unexpectedly strong report on the US labor market.Employment growth may be driven by record immigration, but there is no denying that the American economy is developing unevenly. The rich continue to spend money, which manifests itself in an increase in employment in the service sector and an increase in expenses, while the poor are limited to purchases of basic necessities. Unsurprisingly, positive data on the United States alternate with negative ones.For the Fed, a strong labor market is a reason to revise forecasts. In March, FOMC members expected three acts of monetary expansion. According to a Bloomberg survey, 41% of experts expect this estimate to be reduced to two, and the same number of respondents predict one decrease. This coincides with the expectations of the futures market, which predicts 1-2 cuts in the federal funds rate in 2024. The chances of a rate cut in September dropped from almost 70% to 52%.The collapse of EUR/USD would not have been possible without asset managers, who have been building up short positions on the US dollar for six weeks in a row, which has become the longest series since 2022.The idea of a slowdown in the American economy turned out to be wrong. Now is the time to reconsider your positions. Sustained inflation in the United States may change the Fed's approach to the federal funds rate, and expectations of parliamentary elections in France may lead to a further fall in EUR/USD in the direction of 1.06 and 1.05. We will either sell on the market, or wait for data on the American CPI.
Jun 10, 2024 Read
EUR/USD: ECB will cut the rate before the Fed
EUR/USD, currency, EUR/USD: ECB will cut the rate before the Fed FOREX Fundamental analysis for EUR/USD on June 7, 2024The European Central Bank (ECB) has nevertheless issued a signal about the imminent easing of monetary policy, which will have a positive impact on the Eurozone economy. The decision to reduce the deposit rate from 4% to 3.75%, for the first time in almost five years, has received market approval. ECB President Christine Lagarde noted that the cycle of monetary expansion may continue, although it will depend on economic data. As a result, the EUR/USD pair tried to break up the important level of 1.09. Most forex crosses with the European currency also showed steady growth.And, although the ECB has joined other Central Banks of the G10 countries in cutting rates, euro supporters still have reason to be optimistic. The forecasts for core inflation were raised from 2.3% to 2.5% for 2024 and from 2% to 2.2% for 2025. The ECB noted that inflation is likely to remain above target next year..At the same time, Christine Lagarde noted that despite the reduction in rates, the monetary policy of the European regulator will remain restraining. The head of the Austrian Central Bank, Robert Holzmann, expressed doubts about the majority's decision, pointing to its dependence on data. At the same time, Bloomberg sources claim that the ECB's Governing Council does not plan further steps for monetary expansion in July, and some of its members doubt the need for such actions in September. As a result, the yield of German bonds increased, and the spread with American counterparts decreased, which contributed to the growth of EUR/USD.In the futures market, the probability of a September ECB rate cut has dropped from 80% to 70%. Derivatives indicate a reduction in the deposit rate by 36 basis points in 2024, assuming a probability of less than 50% by the end of the year, another step towards monetary expansion.. Similar forecasts are made for the federal funds rate in the United States. This eliminates the divergence of the monetary policy rates of Frankfurt and Washington, which reduces the risks of a return of EUR/USD to the April low of 1.06.Further movements of the EUR/USD pair will depend on the data on the American labor market for May. Bloomberg experts predict employment growth in the non-agricultural sector by 185 thousand, an unemployment rate of 3.9% and wage growth of 3.9%. Data close to consensus is unlikely to affect the chances of a weakening of the Fed's monetary policy and the EUR/USD exchange rate. So far, derivatives suggest a reduction in the federal funds rate in September with a probability of 68%.Unexpected employment data may change this dynamic. If the American statistics seriously disappoint, the yield on treasury bonds will decrease, and EUR/USD will continue to grow towards 1.108. In anticipation of the NFP and the upcoming inflation release on June 12, we continue to adhere to the buying strategy.Technical analysis for EUR/USDOn Thursday, EUR/USD tested the 1.0874 - 1.0869 support area again.And again unsuccessfully, as buyers were able to defend the key range. In the short term, the trend remains upward. We continue to keep purchases with a goal at the maximum level from June 4. If the maximum is still updated, then the next target for the bulls is the "golden zone" 1.0945 - 1.0937.To generate sales of EUR/USD, it is necessary to consolidate below the support level of 1.0870. In this case, it will be possible to look at short positions with a target in the support area 1.0832 - 1.0823. It should be borne in mind that sales will be transactions in correction, that is, against the main trend, therefore it is necessary to reduce risks when opening orders.
Jun 07, 2024 Read
Forex analysis and forecast for USD/CHF for today, June 6, 2024
USD/CHF, currency, Forex analysis and forecast for USD/CHF for today, June 6, 2024 In the Asian session on Thursday, USD/CHF is moderately declining, testing the level of 0.8910, although the pair showed growth on the eve caused by the release of positive American macroeconomic reports.In May, the index of business activity in the US services sector from the Institute for Supply Management (ISM) rose from 49.4 to 53.8 points, surpassing forecasts of 50.8 points. The S&P Global services sector indicator remained at 54.8 points, as expected. However, employment in the private sector, according to the company Automatic Data Processing (ADP), decreased from 188.0 thousand to 152.0 thousand, which is significantly lower than the forecast of 173.0 thousand. Now investors are waiting for Friday's labor market report (Non-farm Payrolls), which may clarify the prospects for a reduction in interest rates by the Fed this year. The main scenario assumes one or two acts of monetary expansion by 25 basis points each, and the first of them, with a probability of about 60%, may take place as early as September.Today, the data on unemployment in Switzerland are of interest to traders. The indicator, seasonally adjusted, increased from 2.3% to 2.4%, while excluding it, it remained at 2.3%. Meanwhile, Swiss Finance Minister Karin Keller-Zutter stressed the importance of careful analysis of potential risks in the liquidation of large banks, citing the example of the situation with Credit Suisse Group AG, which completed its merger with UBS AG on May 31, finally ending its 168-year existence. She noted that large banks should provide sufficient financial support to their own branches so that the share capital of subsidiaries can be realized without prejudice to the parent companies in the event of a crisis.USD/CHF Technical analysis for todayOn the daily chart, the Bollinger Band indicator is steadily decreasing, as is the MACD, which retains a sell signal. Stochastic is trying to turn up and exit the oversold zoneShort positions can be opened after breaking down the support level of 0.8900 with the nearest target at 0.8839. We place the stop loss at 0.8935.To enter purchases, you should wait for a rebound from the 0.8900 level followed by an upward breakout of the 0.8935 level. For buyers, the target is at the key resistance of 0.9000. We will set the stop loss to 0.8900.
Jun 06, 2024 Read
EUR/USD: ECB will announce the interest rate decision today
EUR/USD, currency, EUR/USD: ECB will announce the interest rate decision today FOREX Fundamental analysis for EUR/USD on June 6, 202482 experts polled by Reuters predict that the ECB will reduce the deposit rate from 4% to 3.75% at its meeting on June 6. However, not everyone considers this decision to be successful. Algebris Investments calls it a political mistake, and JP Morgan calls the actions of the Central Bank too hasty. The ECB joins the regulators of Switzerland, Sweden and Canada, which have already begun cycles of monetary expansion. However, unlike the Swiss franc and the Swedish krona, the euro continues to strengthen against the dollar.The history of rate cuts by Central banks is most often triggered by a slowdown in the economy. After the collapse of Lehman Brothers in 2008, the ECB eased monetary policy to prevent the outbreak of the crisis. In 2011, when Greece was on the verge of bankruptcy and in 2019, rates were lowered due to slowing GDP growth and falling inflation. But the situation in 2024 is different — the Eurozone economy is showing growth.Analysts believe that the ECB is lowering rates mainly because of the promise made at the previous meeting, where a compromise was reached between the "doves" and "hawks" on the June easing of monetary policy. This promise, together with a strong labor market and rising real incomes, has become one of the factors driving the rise in Eurozone GDP. It has also helped to reduce the cost of mortgage and corporate loans.It is logical that Bloomberg predicts a revision of forecasts for eurozone GDP at the June ECB meeting with an increase. If the Central Bank adjusts the forecast for core inflation in the same direction, we will receive a signal that a further reduction in the deposit rate is unlikely. And this is already a catalyst for the growth of EUR/USD.Christine Lagarde's team contributed to the improvement of the Eurozone economy, which had a positive effect on the euro exchange rate. In 2023, European GDP grew by 0.4%, while American GDP increased by 2.5%. According to purchasing managers' indices, both indicators may strengthen by 1.3% in the second quarter. BNP Paribas believes that the peak of the discrepancy in growth rates between the United States and Europe is already over. This means that EUR/USD is unlikely to return to the 1.06 mark in the coming months, if not years.The 25th record high of the S&P 500 and the fall in US Treasury bond yields to the lowest values in two months create favorable conditions for the growth of EUR/USD. However, forex currency trading is not without its shocks. Thus, political events, including the US presidential election, can change the balance of power. Nevertheless, investors' attention is focused on the rhetoric of Christine Lagarde, who is expected to hint at future ECB actions.Taking into account the improvement in forecasts for GDP and inflation in the Eurozone, as well as statements about a gradual easing of the ECB's monetary policy, EUR/USD is likely to continue its rally towards 1.108. A break in the resistance at 1.0905 and 1.0915 will be a reason to build up long positions.EUR/USD Technical analysis for EUR/USDYesterday, EUR/USD tried to break through the support area of 1.0874 - 1.0869, but the attempts of the "bears" were unsuccessful. Buyers were able to defend the area, after which the short-term uptrend continued. Buyers have worked out the first target in the area of the 1.0893 level. The next target for the pair is the maximum from June 4th. If the asset manages to break through the resistance and gain a foothold higher, then the target moves to the "Golden Zone" in the range of 1.0945 - 1.0937.However, if the support area 1.0874 - 1.0869 is broken down on Thursday, the correction will continue to the support range 1.0832 - 1.0823. This zone is one of the key levels, so after testing it, it will be possible to start forming long positions.
Jun 06, 2024 Read
USD/JPY: the yen moves to strengthen
USD/JPY, currency, USD/JPY: the yen moves to strengthen Trading idea for USD/JPY on June 5, 2024USD/JPY strengthened on Wednesday, correcting a significant drop at the beginning of the week, when the pair retreated from the local maximum of 157.47. Today, the asset is testing the mark of 156.00, in anticipation of new market drivers.At the beginning of the week, the US currency was under pressure due to weak data on business activity in the US industrial sector. The Institute for Supply Management (ISM) reported that activity in the manufacturing sector decreased last month from 49.2 to 48.7pp. Since the index remained below 50, the index is in a recession zone, market participants again talked about a possible Fed rate cut in September, as a measure necessary to stimulate the United States economy. Today in the USA, data on the labor market from Automatic Data Processing (ADP) and the index of activity in the service sector from ISM will be published. If the statistics turn out to be weak, the pressure on the dollar may increase.In addition, the yen was supported by rumors that the Bank of Japan is considering reducing the volume of the quantitative easing (QE) program. This decision may reduce the demand for Japanese government bonds (JGB), thereby increasing their yield, which will have a positive impact on the yen exchange rate. The Bank of Japan is expected to discuss this issue at next week's meeting.The growth of USD/JPY is also limited by fears of interference in forex currency trading by the BYA. On Tuesday, the deputy governor of the Bank of Japan, Rezo Himino, expressed concerns about the negative impact of a weak yen on the economy and inflation. According to him, the weakness of the national currency inflates the cost of imported goods and reduces consumption, as buyers postpone purchases due to high prices. However, the Bank of Japan would prefer to see inflation caused by wage growth, which would lead to increased household spending and increased consumption. The rhetoric of the representatives of the Bank of Japan indicates that the regulator will continue to closely monitor the exchange rate and fight the devaluation of the yen, which may lead to a long-term strengthening of the national currency and a decrease in USD/JPY.Recommendations for trading USD/JPYSell Stop 155.50Take Profit 152.50Stop Loss 156.80.
Jun 05, 2024 Read
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