FOREX Fundamental analysis for EUR/USD on November 21, 2022
The main question which worries the market participants is whether the dollar has passed the peak of strengthening or its decrease is just a usual rollback, after which the growth will continue. Financial institutions are divided. HSBC and Morgan Stanley believe that the maximum is out and the greenback begins a long way down, Goldman Sachs and Wells Fargo, on the contrary, believe that the dollar has only corrected and will soon return to the leadership in forex trading.
Even inside the FOMC there is a split. Mary Daly declares that the rate of 4.75% will be quite enough for the solution of the tasks. Her colleague James Bullard believes that in current conditions the rate may reach 7%. We will probably learn the variety of opinions of the FOMC members from the minutes of the November meeting which will be published next Wednesday.
In the meantime asset managers and hedge funds are stepping up the selling of the dollar, bringing the volume of shorts to the highs of July 2021.
Read more: Basic knowledge of fundamental analysis
Nevertheless it is obvious that the bulls' EUR/USD forces are running low and longs fixation is pushing the pair down. Moreover, the Fed is evidently not happy with the easing of financial conditions. It is not excluded that in December the monetary restriction will not go the way the futures market forecasts.
In fact, the drivers with which the dollar strengthened throughout 2022 have not disappeared. The U.S. economy is still the strongest in the world, the difference between the monetary rates of the Fed and any other Central Bank is obvious. Geopolitical tensions keep the demand for protective assets high.
As long as the United States economy does not show a slowdown, the Fed can afford to raise rates without a strong fear of recession. A slowdown in the pace of monetary restriction would tell not so much about the regulator's change of course, but rather about its desire to analyze the effectiveness of the measures taken. In other words, it is too early to discount the dollar, in our opinion.
Selling after EUR/USD fixes below 1.033 is open. Let's follow the pair's behavior when it tests supports 1.022 and 1.015.