FOREX Fundamental analysis on September 12, 2022
The "hawkish" rhetoric of the ECB, lower gas prices and rising stock indices launched the EUR/USD strengthening.
Nevertheless, the fundamental backdrop is still saturated with negativity against the single currency. Capital is fleeing the Old World. According to EPFR Global, managers of large investment assets withdrew $3.4 bln from European equity funds during the week. Over the six months the outflow of funds amounted to $83 bln.
It should be noted that most of the bad news for the euro has already been taken into account by prices, so any burst of optimism is perceived by investors with gusto! On the positive side, we should note Europe's accelerated rejection of Russian energy resources. Whereas before the invasion of Ukraine 40% of the European Union's gas imports came from Russia, this figure has now fallen to 9%. This circumstance contributed to the decrease in prices for the "blue fuel", which became one of the drivers of the EUR/USD growth.
However, it is unlikely that the victorious march of the euro will last for a long time. Gas prices in Europe are still four times higher than last year and eight times higher than in the United States, worsening the trade accounts. The views of the ECB's leadership after September's 75 basis point rate hike are divided. Some governors believe it is necessary to continue aggressive policy at a rapid pace, while others are calling for a slowdown or a pause and look around.
This is in stark contrast to Fed policy, where they are unlikely to give up a 0.75% rate hike in September, even if consumer price growth slows from 8.5% to 8.1%.
In short, we see the EUR/USD rise as a correction, the depth of which will be determined by a number of factors. From the technical analysis point of view of John Murphy, the bulls' inability to break above 1.0125 and 1.0180 will be a signal to exit the longs.
FOREX Fundamental analysis for EURUSD on March 29, 2023Not so long ago, the U.S. dollar was deservedly regarded as the undisputed leader in currency trading on forex, receiving support from the American exceptionalism, the "hawkish" course of the Fed and the demand for protective assets. But now the banking crisis has arrived and investors are abandoning the greenback in favor of gold, the franc and the yen. Moreover, if in the fall the world was expecting a deep recession in the Eurozone economy, now the opposite is true. A deep recession is forecasted for the economy of the Investigative States, while the Euro bloc economy is giving strong signals of recovery, which only plays into the hands of the EURUSD buyers. The dollar has only a chance for further tightening of the Fed's monetary policy, but judging by the latest statements of the regulator's representatives, this chance is pretty slim.Actually, the banking crisis is a side effect of the tightening of monetary policy. A decline in lending with full portfolios of cheapening bonds is not the best option for any bank, especially since financial institutions in the United States are used to living with the soft policies of the Central Bank.The banking crisis is dragging the U.S. economy into the hole, as confirmed by the head of the Minneapolis Federal Reserve Bank, Neel Kashkari. Bloomberg predicted that the probability of a recession within 12 months rose to 60%, well ahead of the negative outlook for the Eurozone.Trends in the likelihood of recession in the U.S. and the eurozoneInvestors, fearing a recession scenario, are buying treasuries, thus reducing bond yields, which puts pressure on the dollar. The franc, yen and gold took away the greenback's status as the main defensive currency. In such conditions the idea of the "dovish" U-turn of Fed, which can be realized this time already in the current year, appeared in the market again.Dynamics of market expectations on the Fed rateThe ECB has a more hawkish stance than the Fed. Christine Lagarde keeps saying the regulator will continue to fight inflation through rate hikes, which means EURUSD has good growth prospects towards 1.12 and 1.14. Our preference is to buy. 
USDCAD analysis on March 28At the Tuesday morning session USDCAD continued the decline started the day before and came close to the key support at 1.3600.Risky assets are supported by the improvement in the market situation. The day before it became known that First Citizens BancShares Inc. agreed to buy most of the problem loans of collapsed SVB. This decision increased consumer confidence and reduced the risks of a financial crisis.The head of the Bank of Canada said the possibility of an economic downturn is growing. Stephen Poloz noted that the negative outlook comes on top of the regulator's fight against inflation, which has reached 8.1%, a 40-year high. The bank's monetary tightening, which has raised the policy rate to 5.2%, is effective against inflationary pressures but is pushing into a recession, with signals especially strong in the real estate and investment sectors.Canada's 2023 draft budget will be released today.USD/CAD Technical AnalysisOn the Daily the Bollinger Band indicator is in a downward trend. The MACD indicator in the positive area continues to decline and will soon reach zero level. Stochastic oscillator is rapidly falling to the minimum levels.Upon breakdown of the key support at 1.3600, we open short positions with the target at 1.3500. Stop-loss is placed at 1.3650.If the price remains above 1.3650, buy with Take Profit at 1.3750. Stop-loss is placed at 1.3600. 
USD/CHF is moving in different directions on Tuesday, consolidating after the previous decline and trading near the level of 0.9150.Bears" took the initiative at the beginning of the week, taking advantage of the improving situation in the financial system after the statement of First Citizens BancShares Inc. representative about purchasing a large part of the credit portfolio of the troubled SVB. The rhetoric of American bankers had a positive effect on the banking sector in Europe as well. Deutsche Bank shares are recovering fast after an unexpected collapse caused by market rumors.Investors are waiting for Christine Lagarde's speech today (13:15 GMT), expecting to hear news on the regulator's further monetary policy course. The ECB raised interest rates by 50 basis points in March and has signaled it will continue to fight inflation while the Fed is likely to take a wait-and-see approach.The Swiss authorities are considering the issue of prosecution of Credit Suisse Group AG top-managers, whose actions provoked the bank bankruptcy.On Wednesday the March index of economic expectations of Switzerland from ZEW will be released. It is expected further decline of the index from (-12.3) to (-18.9) p. There will also be published the Swiss National Bank's report for the first quarter.USD/CHF Technical analysisMajor Forex indicators are showing a downward trend. Bollinger Bands are confidently turned down, MACD has a sell signal. Stochastic Oscillator went down to the 20% level, but could not pass through the oversold area and went flat.After the pair has consolidated below the key support at 0.9100, we will open a short position with a target at 0.9000. Stop-loss is set at 0.9150.Breakout above resistance at 0.9200 will signal the return of buyers to the market. Take profit is at 0.9300. Protective stop is set at 0.9150. 
FOREX Fundamental analysis for EUR/USD on March 28The risks of the banking crisis force the Fed to backtrack and develop the idea of a "dovish" reversal. This lights a green light for the European currency and other risky assets.Of course, the threat of bankruptcy is forcing banks to tighten lending, which reduces lending and negatively affects economic performance. This increases recessionary risks. The difficulty is that these processes are going on all over the world. Not surprisingly, after the collapse of U.S. banks, the Credit Suisse story surfaced and rumors about the unreliability of Deutsche Bank emerged.The monetary authorities have to choose between fighting inflation and stabilizing the banking system. It is no coincidence that expectations of a peak rate from the Fed have fallen from 5.75% to 5.0% in a month. CME derivatives with a 62% probability predict a pause in monetary tightening at the May FOMC meeting and a rate cut of 100 basis points at once by the end of 2023.Expected Federal Funds Rate Trends at Fed MeetingsIt is noteworthy that only a day ago, the probability of such a scenario was 83%. Investors were reassured by Deutsche Bank reports and First Citizens Bank's statement that it was ready to acquire a controlling stake in the collapsed SVB. The news boosted the yields on treasuries and kept the dollar from falling. Moreover, the well-known in the financial world the manager of the largest fund Black Rock believes that the Fed will continue to raise rates and has no plans to reduce them this year.Indeed, if investors are once again fooled by the Fed's "dovish" reversal, EUR/USD will come under pressure. A similar pattern was seen in February when EUR/USD fell below 1.055 after Jerome Powell's hawkish speech in Congress.The dynamics of the supposed peaks of central banks ratesIt turns out that with good conditions for the growth of EUR/USD there are still risks of strengthening of the dollar. Forex trading at the end of March promises to be quite tense and we might say, nervous. If the pair fails to rise above 1.08, there will be a signal for short-term selling. If the "bulls" pass the resistance, the next target is 1.089. 
AUD/USD started the new week with a slight strengthening above 0.6650, although last week the pair was actively declining, returning to the local level of March 16. The downward trend was triggered by concerns about the global banking crisis, the overall strengthening of the US dollar and the Australian macroeconomic statistics.Thus Australian business activity indices turned out to be worse than expected. In March the service sector activity fell from 50.7 to 48.2 p. The composite business activity index declined from 50.6 to 48.1 p. On Tuesday the retail sales report and speech of Lucy Ellis, RBA chairman's advisor, will be published in Australia. AUDUSD Technical AnalysisOn the daily chart, the Bollinger Band indicator is flat while the MACD continued its decline in the negative range and formed a sell signal.The Stochastic oscillator from the top down is testing for a breakdown of the 20% oversold area boundary.If the pair fixes above 0.6650, buy with Take Profit at 0.6750. Stop loss is set at 0.6600.The signal for entry into short positions will be fixation of the price below support 0.6624. The target is 0.6560. Protective stop is set at 0.6660. 
FOREX Fundamental analysis for EUR/USD on March 27, 2023Recession in the U.S. economy may start sooner than it was expected by Jerome Powell's team and earlier than in other countries. This is not particularly good news for the dollar.In 2022 one of the main factors of EUR/USD falling down was the fear of the European economy recession because of the energy crisis. However, everything was not so sad and in March 2023 Eurozone business activity returned to a ten-month high of 54.1 p.The dynamics of European business activityNevertheless the greenback is still trying to recoup its losses, as investors fear that the problems of Credit Suisse can spill over to the Eurobloc financial system. A number of analysts consider Deutsche Bank to be the next victim, although the position of the main German lender is quite stable. At the end of 2022, the bank's net profit reached $6.1 billion, which is a maximum for 15 years. Liquidity and stability indicators are as strong as ever. But investors began to get rid of the euro quickly, which led to a decline of EUR/USDThe strong banking system and economic recovery will allow the ECB to become the main "hawk" among central banks of developed countries unlike the Fed, which raised rates by only 25 basis points in March and signaled about a possible pause in monetary policy tightening. The European regulator, meanwhile, added 50 basis points. And Christine Lagarde announced the regulator's intention to bring inflation back to 2%.Now the divergence in monetary policy rates has turned to the ECB. The yield differential between U.S. and German bonds has narrowed to 70 basis points. This differential was last seen in 2021. At that time, EUR/USD was trading above 1.21.EURUSD and the U.S. and German bond yield differentialMany experts believe that in the current environment EUR/USD will head towards 1.10. In this regard, Eurozone inflation data is of particular interest. According to Bloomberg, CPI will slow down in March, but the core inflation may show a new record of 5.8%.I think that the EURUSD decline is a good buying opportunity. The pivot level for the pair is 1.0715. As long as the quote remains above, we focus on long positions. At a breakout of 1.08 and 1.0825 we plan to increase buying. 
FOREX Fundamental analysis for EURUSD on March 23The Fed has raised the interest rate for the ninth time, but it has not become a factor in strengthening the dollar. EUR/USD went up strongly after the Fed's verdict, which shows that euro buyers have a strong disposition.Investors understand that the cycle of the rate increasing by the American regulator is in its final stage, especially amid banking crisis, the reason of which was the tightening of the Fed's monetary policy.Moreover, during the press-conference Jerome Powell did not rule out the possibility that the March increase in rates will be the last one, as many FOMC members suggested making a pause in monetary restriction.FOMC Federal Funds Rate ProjectionsThe idea of a "dovish" spread has returned to the markets, especially since the inversion of the yield curve, which Jerome Powell believes is the best indicator of a recession, clearly points to an economic slowdown.The dynamics of the yield curve in the U.S.There was a similar pattern in forex trading in the spring when the idea of a Fed rate change pushed EUR/USD and other risky assets higher. If we remember the improving economic situation in the Eurozone, the deposit rate hike from the ECB and the run-up in China, further strengthening of the Euro against the weakening greenback is beyond doubt.We consider buying EUR/USD with targets at 1.12 and 1.14. 
While waiting for the Fed's interest rate decision on Wednesday, GBP/USD is moving without any clear direction near the 1.2230 level.Prior to the Fed's release and Jerome Powell's press conference, market participants will pay attention to British inflation data. Analysts expect a decline from 10.1% to 9.8% (y/y) and an increase of 0.6% (m/m).Core inflation is likely to remain at 5.8%.But of course, the main event of the day will be the news from the United States. The Fed has a difficult task. On the one hand the regulator has to continue the fight against inflation, on the other hand it has to pay attention to the problems of the financial sector and not to allow the banks to go bankrupt.Analysts mostly believe that the Fed will choose the "middle" option and raise the rate not by 50 but by 25 basis points to 5.00%. Investors want to see from Jerome Powell's speech whether the Fed will end its monetary restriction cycle or take a pause. Or maybe the central bank will continue to raise the rate to the previously indicated targets.The Bank of England will hold a rate hike of 25 basis points tomorrow, although today's inflation report might influence the regulator's decision.Technical Analysis GBP/USDBollinger Band indicator is rising moderately. MACD indicator remains in the positive range. Stochastic Oscillator from the top down is testing the 80% level and trying to get out of the overbought area.Today is an eventful day, each of which can completely cancel the signals of technical analysis. At the same time Forex trading based on the news is risky and for traders who prefer calm position trading, the best option is to stay out of the market.For the followers of "technique", a break-down of the resistance at 1.2283 will be a buy signal. The target is at 1.2400. Stop-loss is taken out at 1.2230.It is advisable to open short positions after the price fixes below support at 1.2yo176. Target level is 1.2100. Stop-loss is set at 1.2225.