EUR/USD: speculators close dollar shorts

FOREX Fundamental analysis for EUR/USD on October 10, 2024The 50 basis point interest rate cut in September was a major step in adjusting the Fed's monetary policy. Despite the movement of inflation towards target levels and the cooling of the labor market in the summer months, the rate at 5% remains high. In early autumn, with the activation of the labor market, the mood in Forex currency trading led to a drop in the EUR/USD pair.It became known from the minutes of the FOMC meeting that several officials were inclined to reduce the rate by 25 bps, given the strong economy, employment, as well as inflation exceeding 2%. A more cautious decline could signal gradual changes in monetary policy.Proponents of a soft monetary policy insisted that the conditions for a rate cut had developed back in July. However, after the September employment report, their views began to change. Thus, the president of the Federal Reserve Bank of San Francisco, Mary Daly, said that one or two additional acts of monetary expansion may occur in 2024. The derivatives market assumes that the probability of keeping the rate at 5% in November is about 15%. The forecast for a rate cut for the year now stands at 44 basis points, compared with 70 bps at the beginning of the month.Such trends contributed to the strengthening of the US dollar, which became the longest series of growth since April 2022. However, further dynamics depend on inflation data for September. The general consumer price index (CPI) is expected to slow down to 2.3% year—on-year and 0.1% month-on-month, and the base CPI to 3.2% YoY and 0.2% mom.There is an active discussion in the Forex market that only a clear confirmation of the trend of falling inflation will convince the Fed to lower the rate in November by 25 bps. If inflation turns out to be higher than expected, the US dollar will have the opportunity to continue strengthening.Against this background, the Eurozone economy looks weaker. Germany has revised its GDP forecast for 2024 from +0.3% to -0.2%, which could be the first decline since the beginning of the 21st century. The difference in economic growth rates between the US and the Euroblock, as well as a possible ECB rate cut on October 17, put pressure on the EUR/USD pair.Most likely, even the report on American inflation will not bring support to the EUR/USD bulls. Any short-term increase in quotations is likely to be used to form short positions with a target of 1.085.EUR/USD Technical analysisEUR/USD is testing the target zone of 1.0962 - 1.0936. This area is still being held by buyers, so we are not considering a further decline yet. If an upward impulse follows from the target zone, the pair will go into an upward correction. In this case, we are waiting for the price in the resistance area 1.1041 - 1.1031 or 1.093 - 1.1079.After testing these resistances, we will consider new sales of the instrument with the first target in the area of 1.0988 and the second at yesterday's low of 1.0935.

FOREX Fundamental analysis for EUR/USD on October 9, 2024The Fed has taken a historic step in an effort to provide a "soft landing" for the US economy. In September, the Central Bank sharply lowered the federal funds rate, hoping for a slowdown in inflation (CPI and PCE) to the target level of 2% amid a weakening labor market. However, recent data showed that the US economy is still stable, and with a strong economy it is difficult to keep inflation low, and perhaps the Fed made a mistake. This can result in significant losses for bull traders on EURUSD.Mistakes happen to everyone, but they are not uncommon for the Fed. So, at the end of 2023, the Fed made a miscalculation when, reacting to a slowdown in inflation, it announced an upcoming rate cut. However, inflation went up again in the first quarter, which forced the Central Bank to adjust its position and led to a strengthening of the dollar in forex currency trading.In the summer and autumn, the Fed focused on the labor market, trying to prevent a spike in unemployment. But the US economy continued to show resilience and strength, which led to a sharp drop in the EURUSD.Investors are gradually realizing that hopes for a 150 basis point reduction in the federal funds rate by the end of 2025 have been exaggerated. In 1995, the Fed also sought a soft landing, planning to cut the rate by 200 bps, but actually managed to reduce it by only 75 bps.The Fed's decision in September to ease policy by lowering the rate to 5% still keeps pressure on inflation, although not as much as at 5.5%.The ECB, in turn, faces other challenges. European inflation has already fallen below 2%, and weak business activity indicates serious difficulties in the Eurozone economy.According to a Reuters poll, 90% of experts (70 out of 75) predict that the ECB will reduce the deposit rate by 25 bps to 3.25% at the October 17 meeting. A month ago, there were only 12% of such expectations. In addition, most analysts predict another act of monetary expansion in December and a further rate cut to 2.5% by March 2025. This is a more aggressive path than previously expected, but in line with market sentiment.In other words, the Fed is likely to be more cautious, and the ECB will be more decisive, which creates prerequisites for a decrease in the EURUSD. The possible growth of the pair on the publication of the minutes of the Fed meeting and data on inflation in the United States will be used to sell the asset in the direction of $1,085.EUR/USD Technical analysisEUR/USD is trying to break through the lower Target zone of 1.0962 - 1.0936. If the sellers succeed, the pair may go down to the Golden zone of 1.0878 - 1.0869. Large sales are planned to be fixed in this area, and the asset may go into an upward correction.If it is not possible to break through the Target zone during today's trading, then a corrective growth towards the resistance area 1.1043 - 1.1035 will begin. After testing this zone, we will look for entry into new sales with the first target in the area at 1.0997. The second target is 1.0951.

FOREX Fundamental analysis for EUR/USD on October 8, 2024Forex currency trading, as a rule, takes everything into account, and expectations of a reduction in the US federal funds rate by 150-200 basis points by the end of 2025 have already been incorporated into the dollar exchange rate. However, this scenario changed after the publication of the American labor market data. Prior to this report, the probability that the Fed would cut the rate by 50 basis points in November was estimated at 36%. A day later, the futures market has already ruled out such an option, and the probability of keeping the rate at 5% is now 14%. In such circumstances, the euro is falling against the dollar.The beginning of 2024 turned out to be successful for the dollar: in January-July, the USD index increased by 5%. But then, when the U.S. economy began to show signs of slowing down, investors decided that the dollar would lose ground by the end of the year. However, these expectations were not fulfilled — EUR/USD only briefly rose above the 1.12 mark, after which it fell sharply. If the Fed's rate review continues in October, the pressure on the euro may increase.Nordea analysts predict that by the end of 2024, EUR/USD will fall to 1.09, and by mid—2025 to 1.07, after which the euro may begin to strengthen. However, for this to happen, the global economy must overtake the American one, which is now unlikely. The eurozone is stagnating, Germany is on the verge of recession, and Chinese monetary stimulus will take time to have a noticeable effect. Investors, judging by the reaction of China's stock markets, expect more decisive steps.Thus, the EUR/USD depreciation is due to the market's revision of the Fed's expected steps against the background of US employment data, as well as the return of the theme of "American exceptionalism" to the stage. The dollar may have new advantages. Donald Trump's victory in the presidential election could lead to new trade wars, supply chain disruptions and accelerated inflation around the world. The conflict between Israel and Iran could have similar consequences. In both cases, the Fed may suspend the process of lowering rates or even return to tightening monetary policy, which will strengthen the dollar's position among the forex currency indices.Nevertheless, before the publication of the US inflation report, the EUR/USD bulls may launch a counterattack. Bloomberg experts expect consumer price growth to slow to 2.3%, which will create prerequisites for a Fed rate cut in November by 25 basis points and put pressure on the dollar. At the same time, the president of the Federal Reserve Bank of New York, John Williams, believes that the FOMC forecast for a 50 basis point rate cut in 2024 is a completely realistic scenario.Probably, we are talking about the classic method of forex trading, when an asset is bought on rumors and sold upon the release of data. In this case, any short-term strengthening of EUR/USD to the level of 1.1-1.102 can be used as a selling opportunity.EUR/USD Technical analysisEUR/USD corrects the short-term downtrend. The probable target of the upward correction is the resistance area 1.1043 - 1.1035. After testing the target range, we will look for entry into new sales with the first target in the area of the 1.0997 level. The second potential target is the October 4th minimum at 1.0951.If the Target zone 1.0962 - 1.0936 is broken down during trading and the price is fixed lower, then the next target for sales will be the Gold zone 1.0878 - 1.0869.

FOREX Fundamental analysis for EUR/USD on October 7, 2024If the report on the US labor market (Non-farm Payrolls) cannot dissuade investors expecting an imminent recession, then probably nothing will be able to change their minds. In September, employment increased by 254,000 jobs, which significantly exceeded the expectations of Bloomberg analysts. Additionally, the data for the previous two months were revised upward by 72 thousand. The unemployment rate dropped to 4.1%, and average wage growth accelerated to 4%. The strong US economy provoked a sharp drop in the EURUSD exchange rate.The US dollar showed the strongest growth in a week since September 2022, against the background of a significant decrease in the probability of monetary expansion in November — from 63% to 2%, and Treasury bond yields rose to three-month highs. The sharp strengthening of the dollar in forex currency trading contrasted with the rapid growth of American stock indexes, where good economic news once again became the impetus for a rally.The growth of the S&P 500 index is associated with a "goldilocks" scenario — a balance between economic growth and slowing inflation. However, challenges such as geopolitics, the pre-election volatility of currency pairs and the possible acceleration of inflation can trigger a correction in stock indices and at the same time strengthen the dollar.Even proponents of the Fed's soft policy, such as Chicago Fed President Austin Goolsby, recognize the risks that inflation may not return to the 2% target. A strong economy and labor market, the likelihood of oil prices rising to $100 per barrel in the event of an escalation of the conflict in the Middle East, as well as new fiscal incentives, regardless of who wins the election — Donald Trump or Kamala Harris — increase the chances of a spike in inflation.The situation is reminiscent of the 1970s, when the Fed prematurely declared victory over inflation, which led to a double recession. According to Yardeni Research forecasts, the Federal Reserve may stop cutting rates in 2024. If the analysts are right and the markets expecting a 50 basis point decline are wrong, EURUSD may continue to fall.However, it is unlikely that inflation will rise significantly in September. Bloomberg experts expect a slowdown in consumer prices to 2.3%, which confirms the continuation of disinflation and will help maintain optimism in the stock market. The euro may temporarily stabilize amid the growth of the S&P 500, but most likely this period will be short-lived.EURUSD sales, formed above 1.12 and strengthened from 1.1045, look good. The pair has a good chance of returning to the levels of 1,085 and below, so the forex trading strategy – shorts from any growth, remains relevant.EUR/USD Technical analysisLast Friday, the short-term downward trend of EUR/USD continued, and the pair reached the lower target zone of 1.0962 - 1.0936. This area is a strong support. If sellers can break through it, the pair will go to the golden zone of 1.0878 - 1.0869.If the target zone is held by buyers, then an upward correction will begin, at the end of which it will be possible to consider selling the instrument from the resistance area (A) 1.1043 - 1.1035. The first sales target will be the 1.0997 level. The second one is at least on October 4

FOREX Fundamental analysis for EUR/USD on October 3, 2024Historically, various geopolitical collapses - wars, epidemics or financial crises - have strengthened the position of the US dollar in forex currency trading. In early October, despite rising tensions in the Middle East, the reaction of the markets was restrained, with the exception of oil. The EUR/USD pair is declining, helped by strong data on the US labor market and expectations of a reduction in the deposit rate of the European Central Bank. Although the global situation is worrisome, investors are not in a hurry to invest in protective assets yet.The increase in the number of vacancies in August and employment data in the United States from ADP, where 143 thousand jobs were created in September, which exceeded forecasts and reduced the likelihood of a Fed rate cut by 50 basis points from 37% to 33%. At the end of September, this probability was higher — 63%.Non-farm Payrolls is coming out on Friday, and if the data on applications for unemployment benefits and the general state of the labor market turn out to be positive, the Fed may not worry about a slowdown in the economy. In this case, the gradual normalization of monetary policy will continue, where the key word is "gradual". However, not all FOMC members consider the fight against inflation to be over. The head of the Federal Reserve Bank of Richmond, Thomas Barkin, notes that the Fed has yet to continue the fight in this directionThe Bank for International Settlements also warns of the risks of price increases related to military conflicts, climate change and trade tensions. In this context, an escalation in the Middle East could strengthen the US dollar: as a safe haven currency and in the event of an increase in oil prices to $100 per barrel. Such bets are becoming more and more popular in the derivatives market.Meanwhile, OPEC+ sees no reason to worry and plans to increase production by 180 thousand barrels per day from December. Saudi Arabia has warned that in case of non-compliance with obligations, oil prices may fall to $50 per barrel.If Israel's retaliatory actions turn out to be symbolic, as in April, the situation in the markets will quickly return to normal. However, this is unlikely to stop the downward trend in EUR/USD. The ECB's rhetoric is increasingly shifting towards the "dovish", and even such "hawks" as Isabelle Schnabel recognize the presence of factors constraining economic growth and mention the risks of deflation. This reinforces expectations of a reduction in the deposit rate in October.Before making final decisions, markets are waiting for the US labor market report for September. In the near future, EUR/USD is likely to remain in the range of 1.1–1.105, although short-term sales opened above 1.12 should be maintained.EUR/USD Technical analysisYesterday, EUR/USD changed its short-term trend to a downward one, as sellers were able to break through the support area 1.1088 - 1.1075. Now the target of the bears is the lower target zone of 1.0962 - 1.0936. We will consider new sales on an upward correction to strong resistance levels.These are currently: the resistance area 1.1117 - 1.1108 and 1.1163 - 1.1150. After testing any of these zones, you should pay attention to the reaction of sellers and wait for the appropriate signals to appear and only then open a short position. To change the direction of the trend to an upward one, buyers need to break through the 1.1163 level and consolidate higher.

USD/CAD analysis on October 2, 2024During Wednesday's Asian trading session, USD/CAD shows multidirectional fluctuations near the 1.3490 mark.Investors are refraining from active actions until the release of the US employment report from ADP, which is expected at 14:15 (GMT+2). Forecasts suggest an increase in employment from 99 thousand to 120 thousand, which may support the US dollar. At the same time, the official report on the US labor market contains Non-farm Payrolls. The number of new jobs outside agriculture is projected to decrease from 142 thousand to 140 thousand. The average hourly wage growth is projected to remain at 3.8% year—on-year, with a slight decrease on a monthly basis - from 0.4% to 0.3%. The unemployment rate is expected to remain at 4.2%.The Canadian employment report will not be released this week. However, the day before, an increase in the index of business activity in the Canadian manufacturing sector from S&P Global was recorded from 49.5 to 50.4 points. In the United States, a similar index from ISM remained at 47.2, failing to justify optimistic forecasts. Canada's economy grew below 1.5% in the third quarter, indicating a slowdown. This, as noted by Douglas Porter, chief economist at the Bank of Montreal, may weaken inflation, which reached the 2% target in August. The Bank of Canada has already cut the interest rate three times since June, but the latest data creates the prerequisites for a larger act of monetary expansion. It is possible that the next decrease will be by 50 basis points at once. However, the final decision of the regulator will depend on the employment report.Additional support for the US dollar is provided by the statement of Fed Chairman Jerome Powell, who proposed limiting the rate cut to 25 basis points. The probability of a 50 basis point rate cut, according to the CME FedWatch Tool, immediately fell to 35%, whereas previously this figure exceeded 50%.On the daily chart, the main forex indicators do not give unambiguous signals. Bollinger bands are showing a decline. The MACD retains a weak buy signal. Stochastic signals a possible downward reversal.When breaking down the 1.3475 level, it is recommended to open short positions with a target of 1.3440 and a stop loss at 1.3500.For purchases, you should wait for a rebound from the 1.3475 level, a breakdown of 1.3500 and a price consolidation above this key resistance. The nearest target is 1.3550. We will set the stop loss at 1.3475

On Wednesday, USD/CHF shows multidirectional movements, not moving far from the 0.8450 level. After two days of growth and a rebound from the local lows of mid-September, the pair. demonstrates an uncertain correction.The dollar's rise at the beginning of the week was supported by a speech by Jerome Powell at a meeting of the National Association for Business Economics (NABE). The head of the Fed noted that the regulator prefers a cautious reduction in interest rates by 25 basis points, fearing a possible return of inflation, despite stable economic indicators.The latest data from the United States turned out to be mixed. The index of business activity in the manufacturing sector (ISM) in September remained at 47.2 points, which is below expectations (47.5), while the number of open vacancies according to JOLTS increased to 8,040 million, exceeding analysts' forecasts.Later this week, an important report on the US labor market for September is expected, which may affect investor sentiment and their expectations regarding the Fed's next steps. Economists expect that the number of new jobs outside agriculture will decrease to 140 thousand, and the unemployment rate will remain at 4.2%. The average wage growth is projected at 3.8% in annual terms.The Swiss franc is supported by positive macroeconomic data. The business activity index from the Association of Supply Managers (SVME) rose to 49.9 points in September, and retail trade expanded by 3.2% in August, exceeding forecasts. Swiss inflation data is expected tomorrow, which is projected to remain at 1.1% year-on-year.The head of the Swiss National Bank, Martin Schlegel, said that inflation is likely to continue to decline within the target range of 0.0–2.0%. 85% of analysts expect the Central Bank to cut the rate to 0.75% at the next meeting in December.The Bollinger Band indicator on the daily chart is slightly decreasing while the MACD and Stochastic signal a possible purchase.If the pair breaks down the 0.8450 level, then we will form short positions with a target of 0.8400. We will set the stop loss to 0.8481.in case of a rebound, breakdown and consolidation of the price above 0.8481, we proceed to purchases with a target of 0.8541. In this case, we will place the protective stop at 0.8450.

FOREX Fundamental analysis for EUR/USD on October 2, 2024After Jerome Powell's statements that the Federal Reserve is in no hurry to make changes, and Christine Lagarde's expressed confidence in defeating inflation, forex currency trading changed its positioning, which led to a sharp change in the direction of EUR/USD. Investors began to actively consider the possibility of reducing the deposit rate by the European Central Bank (ECB) in October. Geopolitical tensions have also increased after Iran's missile strikes on Israel, which supports the growth of the US dollar as a defensive asset.Markets estimate the scale of the ECB's future monetary expansion at 51 basis points, which is comparable to the projected reduction in the US federal funds rate by 50 basis points. However, the ECB is likely to act faster. The fall in inflation in the Eurozone below the 2% target makes monetary policy easing inevitable. After Christine Lagarde's speech and the publication of inflation data, any other actions by the ECB, other than lowering rates, will cause disappointment.The drop in inflation to 1.8% triggered a rally in the German bond market. The yield on two-year securities fell below 2% for the first time since the end of 2022, while the yield on ten-year bonds decreased by 11 basis points and reached 2.01%. Morgan Stanley analysts predict a further drop in yields to 1.8-1.9% by the end of the year, as well as gradual cuts in the ECB rate until March 2025. As a result, by the end of next year, the deposit rate may decrease to 1.75%.Political problems in France are also putting pressure on EUR/USD. The minority government clashed with parliament when Prime Minister Michel Barnier proposed to reduce the budget deficit to 3% of GDP by 2029 by raising taxes and reducing spending. Discontent in parliament can lead to a vote of no confidence, which increases risks to the economy and increases the volatility of currency pairs in the market.An additional factor of pressure on EUR/USD was the escalation of the conflict in the Middle East. Israel is clearing neighboring Lebanon from terrorists, to which Iran responded with a massive missile strike. Investors fear further military action and are selling stocks en masse, switching to safe haven assets, including the US dollar.Thus, the rapid actions of the ECB, political risks in France and rising tensions in the Middle East have strengthened the position of the "bears" in EUR/USD. The pair has broken through the 1.11 level and continues to fall. A breakout of support at 1.1045 will open up an opportunity to strengthen short positions.EUR/USD Technical analysisYesterday, EUR/USD continued its correction and reached the support area 1.1088 - 1.1075. This zone is the boundary of a short-term uptrend. At the moment, the pair is trying to gain a foothold below this area. If this happens, the short-term trend will change direction to a downward one. In this case, starting tomorrow, it will be possible to look for an entry into sales with a target in the area of the lower Target zone 1.0962 - 1.0936.If the price returns above the support area, then we will consider buying EUR/USD with the first target at 1.1144. The next target mark is located around 1.1214.