FOREX Fundamental Analysis on October 4, 2022
The United Nations urges the world's central banks, especially the Fed, to stop tightening monetary policy, which is sure to end in a global recession. According to the UN, every 1.0% increase in the federal funds rate reduces the GDP of developed countries by 0.5% and of developing countries by 0.8% at once.
Thomas Barkin, head of the Federal Reserve Bank of Richmond, said in response to the statement that the Fed cares about the prospects of the global economy, but first of all the regulator will follow the situation in the United States.
UN worries are not in vain. The JP Morgan Global Purchasing Managers Index fell to a June 2020 low of 49.8p. Global manufacturing fell for the first time in two years, though business activity indices in the United States remain above 50p, but also show a downward trend.
Market participants viewed the comments of the Fed's spokesman as positive news, suggesting that due to the slowdown in the U.S. economy, the Fed will slow down monetary policy tightening or even begin to adjust to a "soft" course. Stock indices returned to growth, which through currency correlations helped the EUR/USD and GBP/USD bulls. Sterling rose above $1.13 as it additionally reacted to the information that the Treasury decided to postpone the income tax cut for rich Britons. In addition, the Bank of England calmed the markets by resuscitating the QE program.
Investors decided that once the worst is over, there is no point in defensive assets. The year 2022 introduced quite a lot of events in forex trading. This includes the war in Ukraine, the energy crisis in the Eurozone, and galloping inflation. There are more than enough drivers for EUR/USD to fall to a 20-year low. Not surprisingly, the volatility of currency pairs remains at high levels, which allows traders to make good profits.
However, no matter who says what, but rising global uncertainty is a good reason to buy the dollar. It is unlikely that in the near future the greenback will lose its protective role, especially now that winter begins, and nobody can say how Europe will survive it. There are also no forecasts about the end of Russian aggression in Ukraine, nor about the consequences of the Fed's aggressive monetary restriction.
Investors are unlikely to get rid of the dollar, so we consider the EUR/USD growth a temporary correction. In the format of the forex strategy of the day we do not refuse to buy the pair above 0.9850, but are ready to return to the medium-term sales at the rebound from 0.9885; 0.9950 and 1.0000.
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