Fundamental analysis of FOREX on May 16, 2022
The dollar is stronger than ever, so it makes no sense for investors to go against the Fed's policy. Previously, the Fed tried to rock low inflation, for which rates were lowered, the stock market was supported and the dollar exchange rate was deliberately falling. The COVID-19 pandemic has radically changed the tasks. The central bank is tightening financial conditions, which implies a pullback of stock assets, strengthening the yield of treasuries and the dollar.
Over the past decade, the opinion has perversely strengthened in the markets that there is no alternative to stocks. Of course, at that time, the S&P 500 was generating about 17% of revenue annually. Any decrease in the index was immediately used for new longs. Simple thinking brought enormous income.
Alas, since the beginning of 2022, the S&P 500 has lost 16%, and investors are increasingly switching to selling stocks with growth, especially with respect to historical data, the value of securities is still quite high. Factset analytics shows a P/E ratio of 16.7 for the assets of the stock index, despite the fact that the average value over the past 20 years is 15.7. Stocks have a place to fall, therefore, the dollar has room to strengthen.
Dynamics of EURUSD and the global stock market
As for EUR/USD, the steady downward trend here is due not only to the strength of the dollar, but also to a decrease in appetite for rice assets, as well as the weakness of the single currency.
It is expected that in the very near future, the European Commission will reduce the forecast for Eurozone GDP in 2022 from 4.0% to 2.7% with inflation rising to 6%, and in some countries of Eastern and Central Europe, consumer price growth will reach double digits. It is no coincidence that forex currency trading is increasingly talking about the parity of the euro and the dollar.
So far, there are no reasons even for a serious correction in the euro. The single currency may be supported by a pause in the tightening of the Fed's monetary policy, but the Fed is unlikely to do it before September. Moreover, it is very likely that in June and July the Central Bank will raise the rate by 100 basis points. Nevertheless, if an upward pullback occurs in the area of 1.0475 and 1.051 on technical or short-term fundamental factors, then we will use it for new sales.