FOREX Fundamental Analysis for EUR/USD on February 27, 2023
Instead of the expected recession the economy of the United States demonstrates an unprecedented boom, the negative plume of which is an acceleration of inflation. The Fed will have to step up its attack on high prices, which will be a guiding star for EUR/USD sellers.
Not only the personal consumption expenditures index jumped in the United States in January, but also the Powell Price Index - the cost of services, which excludes housing and energy costs. According to the Fed Chairman, it is the most important indicator which shows the real picture of inflationary pressures.
The futures market sharply raised its forecast for the rate ceiling to 5.39%. Analysts believe that the rate will reach its maximum value by August 2023. JP Morgan and Deutsche Bank see 6.5% as the Fed's final target.
By the end of February EUR/USD lost about 4.5% of the value relative to the monthly maximum and the pair does not give any signals to the reversal. Nordea Markets sets 1.03 as a downside target for the asset.
Neither growing European inflation, which implies toughening of the ECB monetary policy, nor fast recovery of China can restrain the fall of the European currency.
Moreover, the rapid growth of the Chinese economy may accelerate inflation in the United States, which adds to the case for raising the Fed's rate to 6.5% and simultaneously strengthens the dollar's position in forex trading. As long as EUR/USD remains below 1.0585, selling at 1.0485 and 1.0325 will be relevant. At least until the release of the US labor market report.