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EURUSD: The euro cannot compete with the dollar

EUR/USD, currency, EURUSD: The euro cannot compete with the dollar

FOREX Fundamental analysis on August 26, 2022

The "bulls" of stock indices and risky assets continue to flee the market, not risking sitting out of position during Jerome Powell's speech. The S&P 500 retreated by 4% from August highs, EUR/USD is in consolidation with a clear advantage of sellers.

Nevertheless, there are still optimists who believe that if the Fed announces a pause in monetary restriction or a reduction in the pace of rate hikes, the dollar will immediately collapse, and stock indexes and risks will soar. Perhaps this would be the case in conditions of low inflation, but now the Fed will go further, despite possible labor market problems and rising unemployment. The regulator is tightening financial conditions and will not abandon this task.

Investors are arguing by 50 or 75 basis points that the FOMC will raise the rate in September, but as the Committee members themselves say, today the answer to this question is akin to a coin toss. Before making a decision, the Fed will analyze the inflation report, labor market data and business activity indicators.

In fact, the size of the rate increase in September is not the most important question. More important is the period of keeping rates at a high level, and here the ECB is unlikely to compete with the Federal Reserve, although, as can be seen from the minutes of the meeting, the members of the Governing Council of the European regulator are very concerned about the collapse of the single currency.

I believe that regardless of Jerome Powell's speech, the medium-term trends of EUR/USD will not change. This means that our forex trading method remains the same - the build-up of short positions opened from 1.002 at the breakdown of the 0.095 and 0.991 supports, if the pair goes above the resistance of 1.003, then we will wait for the completion of the corrective rollback.

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EUR/USD: European currency is entering the growth line
EUR/USD, currency, EUR/USD: European currency is entering the growth line FOREX Fundamental analysis on February 22, 2024As a rule, fears come from uncertainty, so it is difficult to be afraid of what is already known. The market expected such rhetoric from the Fed, which could postpone the first reduction in federal funds rates to a later date. This was also discussed by representatives of the Federal Reserve at the end of January. However, now, a series of strong economic reports from the United States has changed forex currency trading. The publication of the minutes of the last FOMC meeting raised the EURUSD quotes.The Fed is facing a difficult choice. Moving too slowly away from tight monetary policy could expose the U.S. economy to the risk of recession. Too fast a transition can trigger inflation again. Three weeks ago, the market expected the start of monetary expansion in March, so the phrase from the minutes that the majority of FOMC members are worried about the risks of premature rate cuts should have disappointed EURUSD. But this did not happen.In fact, the U.S. economy has turned out to be surprisingly strong, and inflation continues to slow down. In such circumstances, monetary policy easing would be premature.Investors drew attention to other signals from the Federal Reserve indicating its intention to carry out three acts of monetary expansion in 2024. Also, do not forget about the regulator's plans to reduce the balance sheet, which usually happens along with a reduction in rates. According to FOMC members, a slowdown in asset sales will prolong the QT program and reduce the risks of market destabilization. Reducing the supply of treasuries will raise bond prices and lower yields. This is positive news for EURUSD.So Jerome Powell and his colleagues tried to scare investors in January, but a lot has changed since then. The markets themselves have come to the conclusion that the federal funds rate will begin to decline in June. As for the scale of the expected monetary expansion, after the publication of the protocols, they decreased slightly - from 90 bps to 86 bps. It is not surprising that EURUSD buyers were not afraid of this news.Sales of the US dollar, which has lost its main support, are gaining momentum. Strong data on European business activity may further support the growth of the main currency pair. According to Citi, the previous dynamics of the PMI shows that the purchasing managers' indices in the Old and New World are either growing together, or the discrepancy between them is decreasing. This is considered a clear signal for the growth of the EURUSD. In addition, the overall positive dynamics of economic surprises in different countries indicates an improvement in the state of the global economy.The euro, as a pro-cyclical currency, reacts positively to the good news of global GDP, which creates prerequisites for the continuation of the upward trend of EURUSD in the direction of the previously mentioned target of $1,088. It makes sense to maintain long positions formed in the area of 1.1073-1.079.EUR/USD Technical analysisOn Thursday morning, EUR/USD seeks to break the resistance 1.0833 - 1.0820 and gain a foothold above this level. If the American trading session ends above the specified resistance, the short-term trend will change to an upward one. In the case of such a scenario, starting tomorrow, purchases of the instrument are possible in order to test the upper limit of the target zone 1.0972 - 1.0946.If, during today's trading, prices return back with a subsequent update of the minimum on February 21, then conditions are formed for entering short positions with the goal of the minimum mark on February 14.
Feb 22, 2024 Read
USD/CHF: Swiss National Bank may start lowering rates
USD/CHF, currency, USD/CHF: Swiss National Bank may start lowering rates Trading idea for USD/CHF dated February 21, 2024In the Asian session on Wednesday, the USD/CHF pair shows almost zero dynamics, trading near the level of 0.8800. The low volatility of currency pairs is explained by the wait-and-see attitude of traders before the publication of the minutes of the last meeting of the Federal Reserve System (FRS) at 19:00 GMT today.From the Fed minutes, traders hope to have a clearer picture of the prospects for the regulator's monetary policy, especially in terms of the first reduction in the key interest rate. Representatives of the FOMC will also speak today, expressing their views on the Fed's next steps. According to the Fedwatch Tool, markets currently estimate an almost 70% probability that the Fed will leave the rate unchanged at the next two meetings. The probability of a rate cut in June is 52%, but if there is additional evidence of an increase in inflation or an improvement in the national labor market, monetary policy easing may be postponed to the second half of the year. It is important to note that the opinions of the voting members of the Fed have changed a lot in recent days, and even under the most optimistic scenario, it is now assumed that the key rate will be lowered only twice this year, and not three or more, as previously assumed. Given this, the dollar's strengthening potential has not yet been exhausted.The franc remained under pressure after the publication of inflation data in Switzerland. In January, the consumer price index was 0.2%, which was lower than the expected 0.6%, and the annual rate decreased to 1.3% from the previous 1.7%. In this regard, the Swiss National Bank may consider the possibility of an early reduction in the key interest rate at its meeting on March 21. In light of the above, preference remains for long positions on the USD/CHF pair.We offer to set up orders:Buy-stop 0.8830take-profit 0.9000stop-loss 0.8760
Feb 21, 2024 Read
EUR/USD: buy while they sell cheap
EUR/USD, currency, EUR/USD: buy while they sell cheap FOREX Fundamental analysis on February 21, 2024The whole world is in constant motion, and financial markets are no exception here. A few weeks ago, traders were confident of an imminent reduction in federal funds rates, which forced Jerome Powell to cool the ardor of investors.Currently, traders expect the minutes of the January FOMC meeting to demonstrate harsh rhetoric. Actually, the markets still heard the Fed, as a result of which the US dollar lost its key position in forex currency trading, allowing the EURUSD to gain a foothold above the 1.08 level.In fact, there is a certain logic in the fact that the main currency pair, despite the strong data on January CPI and PPI, did not collapse to the level of parity. The index of personal consumption expenditures, an indicator of inflation for the Fed, decreased from a peak of 7.1% in June 2022 to 2.6% in December last year. However, this figure includes a 4% increase in inflation in the first quarter of 2023, which will soon fade into oblivion. On a six-month basis, the PCE has already approached the target level of 2%, and on a three-month basis it even approached zero. It is logical that the Fed is preparing to cut rates in 2024, despite the fact that experts' estimates on the scale of monetary expansion have fallen to 3-4 acts.But is it possible to keep inflation low with a strong economy? Theoretically, this is unlikely. In practice, the pandemic, the war in Ukraine, the conflict in the Middle East, as well as the related destruction and subsequent restoration of supply chains, as well as artificial intelligence technologies have dramatically increased labor productivity over the past three quarters to 3.9%. This is twice as much as in the decade before COVID-19. As a result, US GDP is growing, contributing not only to the strengthening of stock indexes, but also to the acceleration of the economies of other countries.The euro reacts sensitively to global growth, as it relates to pro-cyclical currencies, especially given the reduction in the main PBoC interest rate. This can support the Chinese economy, and the outstripping dynamics of wages in comparison with inflation can help the Eurozone economy. As a result, global economic growth may be higher than expected, which will be a positive factor for the EURUSD bulls.Although the euro certainly has its vulnerabilities. The main problem of the main currency pair is the risks of accelerating American inflation. This can affect stock indices, increase the yield of US Treasury bonds and, through currency correlation, support the US dollar. However, there is still a lot of time before the new CPI and PPI data, and so far EURUSD can enjoy success.What doesn't kill us makes us stronger. If the euro passes the test of the "hawkish" rhetoric of the minutes of the January FOMC meeting, EURUSD buyers will receive an incentive to push the pair at least to the level of 1.088. When everyone sells, there is a great opportunity to buy.
Feb 21, 2024 Read
EUR/USD: the gloss is coming off the dollar
EUR/USD, currency, EUR/USD: the gloss is coming off the dollar FOREX Fundamental analysis on February 20, 2024It is always difficult to give up beliefs, especially if it is associated with a possible financial loss. It is just as difficult to believe that the Fed in 2024 can cut rates not 6, but only 3-4 times, as it is to accept that the US economy is starting a new stage of growth instead of a soft landing. The change in market narratives led to a strengthening of the dollar in January-February, but it seems that the euro is also starting to recover after a strong blow.When signs of a slowdown in the United States economy appear, dollar sellers are immediately ready to adjust forex trading strategies. They are often able to find tricks even in positive statistics. For example, an impressive increase in employment by 353 thousand in January caused criticism, as a number of experts considered them to be overestimated and suggests an adjustment in the following months.A lot depends on whether the US economy starts a soft landing or enters a new phase of growth. In the first case, the dollar may lose the attractiveness associated with American exceptionalism. However, at the moment the economy looks stable, and the reasons for this lie not only in fiscal incentives and accumulated savings, but also in migration policy and military events.While Congress is worried about illegal migration, the Budget Office is raising GDP forecasts. The economy is expected to expand by 2.1% due to labor force growth of 1.7 million over capacity in 2024 and 5.2 million in 2033. This will lead to an increase in tax revenues. It is assumed that the budget deficit in ten years will amount to 6.4% of GDP, which is less than expected in 2023.According to the calculations of the White House, 64% of the amount of $60.7 billion provided in the form of assistance to Ukraine will return back. Due to the increase in orders from the Pentagon for Ukraine and the European Union, industrial production in this area has increased by 17.5% since February 2022.If Russia's GDP is growing at the expense of the military industry, why can't the American economy do the same? The dollar may retain its attractiveness due to American exceptionalism, which will allow the Fed to hold rates for a long time, and investors to keep funds in money market funds. The transition to bonds may reduce the yield of treasuries, the flow of finance into stocks will raise global risk appetite, which will be a positive factor for EURUSD.The pair's prospects in the context of medium-term forex trading are still unclear. In the short term, investors fear that the Fed may confront the market on the issue of the first rate cut, which may be reflected in the FOMC minutes. A possible hawkish direction will deter the EURUSD bulls. The situation is reminiscent of December, when Jerome Powell's inability to balance the markets led to a decline in the dollar.It seems to me that if the EURUSD bears fail to lower the quotes below 1.073 in the coming days, or if the pair rises above 1.079, we should proceed to purchases.
Feb 20, 2024 Read
EUR/USD: euro will try to take its chance
EUR/USD, currency, EUR/USD: euro will try to take its chance FOREX Fundamental analysis on February 19, 2024If the market does not follow expectations, then the probability that it will head in the opposite direction increases significantly. The EURUSD bears were not helped by statistics on US producer prices, which means that an adjustment in investors' views on the prospects for the federal funds rate has already occurred. The US dollar is losing ground in forex currency trading, and now, at best, consolidation awaits it.High inflation in the service sector pushed producer prices up: PPI increased by 0.3% (mom) and 0.9% (yoy). The base rate accelerated by 0.5% (mom) and 2% (yoy). These data confirm the opinion formed after the release of the CPI data. Namely, the disinflation process has slowed down, and the Fed can afford to take its time with the decision on rates. The futures market predicts the beginning of monetary expansion in June with an estimate of its scale of 100 basis points, which is almost in line with the December FOMC forecasts.In early January, investors expected the Fed to cut rates by 150 basis points to 4%, and the start of the cycle of easing financial conditions is scheduled for March. By mid-February, the market was forced to accept the position of the Central Bank, depriving the EURUSD bears of their main advantage. Moreover, FOMC officials confirm their December position. The head of the Federal Reserve Bank of Atlanta, Rafael Bostic, believes that monetary policy easing will begin in the summer, and his colleague from the Federal Reserve Bank of Dallas, Mary Daly, supports the idea of three rate cuts in 2024.Consequently, the US dollar is no longer supported by rate forecasts, but will a weak currency like the euro be able to start growing under the current conditions? Quite! Surveys of purchasing managers in the manufacturing sector of various countries indicate economic growth in February after the January drop. The euro, being a pro-cyclical currency, reacts very positively to favorable news from the global economy.ECB representative Isabelle Schnabel believes that inflation in the Eurozone, due to low productivity, may return to growth earlier than in the United States. Workers earn more income despite the fact that GDP is growing weakly, forcing companies to shift high prices to consumers. In this context, not the Fed, but the European Central Bank risks repeating the mistakes of the 70s of the last century. If the regulator plans to start the rate cut cycle in September, then EURUSD may grow well.Consequently, the inability of the US dollar to use the PPI data in its favor increases the risks of consolidation of the main currency pair. A breakdown of the resistance level at 1.079 may serve as a signal for purchases of EURUSD.EUR/USD Technical analysisEUR/USD is currently testing resistance in the range of 1.0787 -1.0778, which is currently being successfully held by sellers. From this zone, we can consider the formation of new sales with a goal at the minimum level on February 14.In case of a breakout of the pair above the resistance, the price may adjust to the resistance level 1.0833 - 1.0820. This range is the boundary of a short-term downtrend. From here, we will also consider the possibility of selling EUR/USD.
Feb 19, 2024 Read
EUR/USD: dollar has lost the advantage of American exceptionalism
EUR/USD, currency, EUR/USD: dollar has lost the advantage of American exceptionalism FOREX Fundamental analysis on February 16, 2024The market always hears only what it wants to hear. Traders ignored the reduction in applications for unemployment benefits and the increase in import prices to 0.8% (mom). But they immediately drew attention to the first reduction in industrial production in three months and a significant decrease in retail sales in the United States. These indicators point to a slowdown in the American economy and may force the Fed not to delay lowering rates. What is not the basis for activating the "bulls" of EURUSD?American exceptionalism, which helped strengthen the dollar in January and February, was under attack. Against the background of Japan's shrinking economy, stagflation in the Eurozone, recession in the UK and problems in China, the dollar looked like the leader among other forex currency indices. However, a 0.8% (mom) decline in U.S. retail sales, which was the lowest in almost a year, quickly changed the picture.This report is a reflection of consumer activity, a key driver of GDP growth. The poor statistics prompted the leading indicator from the Atlanta Federal Reserve to lower the forecast for US economic growth in the first quarter from 3.4% to 2.9%. Goldman Sachs also revised expectations from 2.9% to 2.5%.If the Eurozone economy begins to gradually accelerate due to slowing inflation, a strong labor market and higher real wages, the gap in economic growth with the United States may narrow, which will support buyers of EURUSD.Despite the decline in the forecasts of the currency bloc's GDP, it is likely that the final results will be better than expected. This will also be a positive factor for the euro.If the strengthening of the US dollar at the beginning of the year was due to expectations of changes in Fed rates and American exceptionalism, then by the end of winter these factors had stopped working out. Now the opinion of derivatives about the beginning of the Fed's monetary expansion in June coincides with the position of the Central Bank, although earlier investors expected the start of a cycle of softening financial conditions in March. The market forecasts a decrease in the cost of borrowing by 90 basis points, close to the FOMC forecast of 75 bps.In addition, the position of the US dollar in forex currency trading, as a protective asset against the background of the growth of stock indices, no longer looks so perfect.Inflation data can play a key role in the context of positioning foreign currency assets. A strong producer price index can cause concern in the market and slow down the S&P 500 along with the EURUSD. In this case, traders will return to selling in the direction of 1.073 and 1.064. Otherwise, the slowdown in the January PPI may be a signal to buy the euro at the breakdown of the $1.079 mark.
Feb 16, 2024 Read
Forex analysis and forecast for USD/CHF for today, February 15, 2024
USD/CHF, currency, Forex analysis and forecast for USD/CHF for today, February 15, 2024 In Asian trading on Thursday, USD/CHF showed a slight decline, developing a "bearish" momentum on Wednesday. The pair is currently testing the 0.8850 level for a downside breakout.Market participants continue to analyze the January inflation data published on Tuesday in the United States, which further strengthened the opinion on postponing the start of the Fed's rate cut cycle. The consumer price index slowed from 3.4% to 3.1% (YoY), falling short of expectations of 2.9%. On a monthly basis, the indicator recovered from 0.2% to 0.3%, while analysts did not predict any changes. Core inflation accelerated by 0.4% per month and 3.9% (YoY), exceeding forecasts of 0.3% and 3.7%, respectively. In Switzerland, the index gained 0.2% in January, while +0.6% was expected. Annual inflation decreased from 1.7% to 1.3%.Data on industrial inflation and consumer confidence from the Swiss State Secretariat for Economic Affairs (SECO) for the first quarter will be presented today. Statistics assess household spending that affects economic activity. The production and import price index is expected to decrease by 0.2% in January after -0.6% in the previous month. This may put pressure on the national currency.USD/CHF Technical Analysis for todayOn the daily chart, the main forex indicators reflect steady growth. However, the activity of the "bulls" has not yet been observed. The MACD indicator is growing, maintaining a relatively strong buy signal. Stochastic is flat in the region of maximum values.Above the resistance of 0.8900, we return to purchases in the direction of 0.9000. We set the stop loss at 0.8850.When the pair is fixed below 0.8850, we move to short positions with a take profit of 0.8760. We will place the stop loss at 0.8900.
Feb 15, 2024 Read
EUR/USD: the pair may turn around before reaching the target
EUR/USD, currency, EUR/USD: the pair may turn around before reaching the target FOREX Fundamental analysis on February 15, 2024Prices take everything into account – the old market postulate of forex currency trading. If the situation had been extremely unfavorable, stock indexes would not have shown growth. However, the S&P 500 began to recover after the January US consumer price report due to unexpected "dovish" comments from FOMC members. Financiers claim that the dynamics of inflation can be tortuous, but in any case it is moving towards the target set by the regulator. Is it possible, in this regard, that the Fed will cut rates in May? If so, the EURUSD may reach the bottom sooner than expected.The head of the Federal Reserve Bank of Chicago expresses the opinion that in order to be sure of a stable decrease in inflation towards the 2% target, it is not necessary that its indicator be as low as in the last 6 months of 2023. Even a small price increase is still consistent with the Fed's strategy. Austin Goolsby, repeats Powell's words that to begin lowering federal funds rates. no need to wait for the PCE to drop to 2%. There are other risks as well. For example, high borrowing costs can lead to a rapid increase in unemployment.Investors recall that the Fed often ignores single data, focusing on trends, and the current decline in inflation is visible to the naked eye. However, the surge in consumer prices followed by a recession indicates that standard approaches may not be effective. The Fed has limited experience dealing with such fluctuations, especially in the context of post-pandemic GDP growth.It is clear that even in a strong economy, a reduction in rates is not excluded. If we draw parallels, before COVID-19, gross domestic product expanded at the same rate, and unemployment remained at the same level as it is now. At the same time, inflation was below 2% with a significantly lower rate. In the current conditions, there is a risk that with the restoration of logistics chains, prices will fall below the target, and high rates will become a real threat to the economy. Why should the Fed wait for the implementation of a negative scenario?The regulator is aware of the need to ease monetary policy. The question is, when to start and how much to carry out monetary expansions? After the January inflation report, the probability of March easing decreased from 77% to less than 10%. The focus of attention is May, but rather June.So far, one thing can be said - even the strongest reports of the American economy will not stop the Fed from easing monetary policy in late spring and early summer. On the contrary, an unexpected increase in retail sales in the United States can restore the upward trend of stock indices, and through currency correlation improve risk appetite by supporting the euro. For EUR/USD to collapse, additional confirmation of inflation acceleration, including PPI, is required.We believe that the EUR/USD rebound from the bottom is close. This may happen even before the expected fall to the area of 1.06-1.064. However, we consider buying the pair before recovering to 1.08 to be unnecessarily risky.EUR/USD Technical analysisYesterday, EUR/USD tried to break below the target range of 1.0719 - 1.0702, but without success. As you know, if an asset does not move in one direction, then it will start moving in the other. As a result of the "bearish" failure, an upward correction began to form, and with its further development, we can expect the asset to recover to the resistance area 1.0787 - 1.0778. After testing the range 1.0787 - 1.0778, we suggest considering the possibility of new sales with a target at the previous local minimum.In case of a breakdown above the resistance 1.0787 - 1.0778, the upward correction will continue to the resistance area 1.0833 - 1.0820. This zone is the boundary of the trend, and can also be considered as a promising place to enter the EUR/USD sales.
Feb 15, 2024 Read
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