FOREX Fundamental Analysis for November 15, 2023
Events are repeating themselves. Last year, after the October inflation report, the US bond yields collapsed and dragged the dollar with it. That time CPI slowed from 8.2% to 7.7%, showing that the Fed's work was not done in vain. At the same time, the market reduced the probability of a rate hike in December, which together helped EUR/USD to start a strong recovery.
This time around, consumer prices slowed from 3.7% to 3.2% and the core inflation rate slowed from 4.1% to 4.0%. This is the low of September 2021. Moreover, for the first time since July 2022, the indicator did not show a monthly gain. With the Fed's monetary restraint taking place in 2022-2023, the markets are now counting on a reversal of the regulator's monetary policy course rather than a reversal of a rate hike. The probability of a rate cut rose to 30% in March and 65% in May. Logically, stock indices showed excellent growth yesterday, and through currency correlation helped the recovery of risk assets.
Investors chose to wait for the inflation report for a reason and did not buy the dollar despite the John Murphy technical analysis signals. The Fed did end the monetary restriction cycle after all, although investors may have once again gotten ahead of the curve by expecting an immediate dovish reversal. But, of course, the Fed will make the final decision based on the inputs.
Yesterday's bullish EUR/USD momentum showed how much the dollar was overbought, although, to some, such a market reaction may seem excessive. Nevertheless, the demand for the dollar is decreasing and we will hold the previously formed purchases with the target of 1.12.