FOREX Fundamental analysis for EUR/USD on August 8, 2024
If you are worried about a recession, you may already be in it. Constant fears that the correction of the S&P 500 will lead to an economic downturn do not abate. Although a fall in the stock index through currency correlation usually causes the strengthening of the US dollar as a protective asset, this time everything turned out differently. Investors are demanding from the Fed an aggressive reduction in the federal funds rate, which strengthens the EURUSD.
During Black Monday, derivatives predicted three acts of monetary easing from the Fed in 2024, with 50 bps each. At that time, the scale of the weakening was estimated at 150 bps, but later decreased to 108 bps. A 41 bps rate cut is expected in September. However, aggressive steps by the Central Bank may increase panic. Will Jerome Powell's team agree to this? Doubtful.
Despite the efforts of the Fed and the Bank of Japan to reassure investors, the fear does not disappear. JPMorgan has increased the probability of a recession by the end of 2024 from 25% to 35%, and the chances of a recession before the second half of the year are estimated at 45%. Employment during hard landings usually decreases, which is not yet observed, but the situation may change. Unemployment before recessions grows slowly at first, and then accelerates.
The July rise in unemployment to an almost three-year peak of 4.3% could be temporary. According to Bloomberg, layoffs due to Hurricane Beryl have contributed significantly to rising unemployment, especially in Texas. But they are temporary. Unsurprisingly, markets are waiting for new data on unemployment benefits. A sharp decrease in this indicator may signal the short-term nature of labor market problems, which will cause a new wave of stock purchases and the sale of EURUSD.
Meanwhile, the main currency risk is growing due to the fall in Treasury bond yields after the unsuccessful auction of 10-year securities for $42 billion and the decline of the S&P 500. The fall in the stock index is perceived as a sign of an impending recession, which forces investors to demand an aggressive rate cut from the Fed.
Nothing lasts forever in forex currency trading, not even panic. Continued market turbulence may return the EURUSD to the upper limit of the 1.08-1.1 consolidation range, especially if applications for unemployment benefits exceed forecasts. However, sooner or later the panic will subside, and this will lead to sales of the pair.
EUR/USD Technical analysis
EUR/USD is growing from the support area (A) 1.0924 - 1.0916, developing a short-term uptrend. The first target for buyers is the 1.0963 level, followed by a maximum on August 5. We will keep long positions open on the rebound from the support area (A). After working out the first goal, we will cover some of the longs, and transfer the rest of the transactions to breakeven.
At the same time, we cannot exclude the possibility of a deeper correction with a break below the support (A). In this case, the fall will continue to the support area (B) 1.0882 - 1.0870. But we will also consider purchases from her.