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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: Fed officials do not expect an early victory over inflation
EUR/USD, currency, EUR/USD: Fed officials do not expect an early victory over inflation FOREX Fundamental analysis for EUR/USD on May 17, 2024Evidence of the cooling of the United States economy continues to accumulate, but the Federal Reserve has not yet decided to reduce the federal funds rate. FOMC members John Williams Thomas Barkin and Loretta Mester say that the Central Bank will need more time to defeat inflation. These statements, along with a rapid increase in import prices and a good report on applications for unemployment benefits, led to a weakening of the EURUSD pair.As soon as the US dollar showed weakness, it immediately became the object of criticism. StoneX believes that the collapse of the dollar can occur for several reasons: an improvement in global risk appetite, the recovery of the Chinese economy and the hard course of the Bank of Japan. However, two of these three factors have come into question. Retail sales and fixed asset investments in China did not meet expectations, and hedge funds and asset managers, according to Bloomberg, used the April inflation report to buy dollars. The growth of the USDJPY exchange rate through currency correlation also affected the weakening of other assets.The appetite for risk is really increasing, as evidenced by the next records of stock indexes. However, the market often takes wishful thinking for granted. At the end of 2023, after the Fed forecast a rate cut at three meetings in 2024, investors expected six acts of easing.Now the situation is repeating itself. Weak data on the labor market, retail sales and industrial production have given rise to rumors that the July meeting of the Fed may present a surprise. Given that the Central Bank will have two more employment and inflation reports before that time, the likelihood of a rate cut is growing.Nevertheless, with 175 thousand new jobs and unemployment at 3.9%, the economy can hardly be called weak. Retail sales are rising by 3.5%, which makes it unlikely that the 2% inflation target will be reached soon. The Fed will probably have to wait until inflation drops to this value. Nordea predicts that rates will be lowered in December, rather than in September, which may lead to a drop in the EUR/USD pair to 1.07 by the end of July.The key question for EURUSD is whether the US economy will continue to cool down. If so, Treasury yields will fall, increasing the chances of the Fed easing monetary policy in July, which will lead to a drop in the dollar in forex currency trading. Otherwise, positive macro statistics will bring the greenback back to life.Investors are closing positions and going into standby mode, which may lead to a correction and consolidation of the EURUSD. While these boundaries are not defined, it is possible to use bounces from the support levels of 1.0835 and 1.08 to buy the pair.EUR/USD continues to decline for the second day in a row, correcting after strengthening at the beginning of the week. Today, the pair is trading at 1.0862. In the morning, traders did not show much activity, as they are waiting for the release of inflation data in the Eurozone.Consumer Price Index (CPI) The US grew by 3.4% in April, which is lower than the March strengthening of 3.5%. The base indicator excluding food and energy prices was 3.6% (YoY), which is lower than the previous value of 3.8%, but fully in line with market expectations. Despite the fact that inflation is still well above the 2% target, the data put pressure on the dollar. The decrease in CPI increased market expectations about a possible easing of the monetary policy of the Federal Reserve System (Fed) in the second half of the year.On Thursday, data on initial applications for unemployment benefits in the United States were also published. The number of applications for the week increased to 222 thousand, which exceeded forecasts. The indicator for the previous week was revised upward to 232 thousand. Despite the negative background, dollar buyers were able to take the initiative and ended Thursday's trading session on a "green" wave. The dollar was supported by comments from Fed representatives. Neil Kashkari, President of the Federal Reserve Bank of Minneapolis, expressed doubts that the current monetary policy has a sufficient impact on inflation and called for keeping rates at the current level for several more months. The head of the Federal Reserve Bank of New York, John Williams, noted that one positive inflation report is not enough to neutralize the negative data of previous months, so do not expect an early rate cut from the Fed.Today, traders' attention is focused on inflation data in the Eurozone. The European consumer price index is expected to remain at 2.4% in April, while the base index will be 2.7%. If the forecasts are confirmed, this will be another indication that inflation in the EU countries is gradually approaching the target level of 2%. This could allow the European Central Bank to consider cutting rates as early as June. Thus, the pressure on the euro may increase not only due to the recovery of the dollar, but also due to the high probability that the easing of the ECB's policy will occur earlier than in the United States.
May 17, 2024 Read
EUR/USD: buyers' target at 1.108
EUR/USD, currency, EUR/USD: buyers\' target at 1.108 FOREX Fundamental analysis for EUR/USD on May 16, 2024The EURUSD downtrend has been interrupted after all, and this is good news for risk buyers. However, the pair's transition to strengthening will be much more difficult than it would have been in the first half of May, since the slowdown in American inflation has already been taken into account by traders. In short, it is not the easiest time to trade forex.The decline in consumer price growth in April to 3.4% and core inflation to 3.6% was good news for both the Fed and financial markets. Although, of course, the Fed will not make a decision based on just one report. Moreover, the option of tightening monetary policy cannot be ruled out. The last time the Fed did this was in July 2023, raising rates to 5.5%, the highest level in more than two decades.Based on the PPI and CPI data, it is possible to calculate the personal consumption expenditure index (PCE), the most important indicator of inflation for the Fed. According to the latest figures, PCE will increase by 0.2% per month in April. This will keep the annual rate at 2.8% or slightly reduce it to 2.7%. It's too early to talk about winning over high prices, but you can relax a little.The Fed will probably need a few more reports before starting to ease monetary policy. Derivatives show a 73% chance of a rate cut in September and a 94% chance of two cycles of monetary expansion before the end of 2024. Will there be a third one? This depends on a further slowdown in inflation and a slowdown in the economy.The first comments from FOMC officials after the release of the CPI report indicate that the Central Bank will need more time to make decisions. Neil Kashkari from Minneapolis believes that we need to wait to determine exactly where inflation is heading. Austen Goolsby from Chicago is demanding more data for monetary policy adjustment decisions.The Fed is easy to understand. It is unknown whether the cooling of the American economy will continue or after a slight drawdown, it will return to growth. In addition, the strengthening of the commodity index to its highest value in more than a year increases the risks of a new round of inflation.The idea of changing the EURUSD downtrend is based on the assumption of reducing the divergence in economic growth in the United States and the Eurozone. However, not everyone shares this point of view. The European Union maintains the forecast for the GDP of the currency bloc in 2024 at 0.8% and reduces it from 1.5% to 1.4% in 2025.In general, the EURUSD recovery hypothesis has a right to exist, but the bulls face serious obstacles. Pullbacks and consolidations are ahead, and it will be increasingly difficult to keep purchases formed from 1,073. In order not to receive losses, traders must clearly control the loading of the deposit. But the target of 1.108 is still relevant.EUR/USD Technical analysisOn Wednesday, EUR/USD continued to develop a short-term uptrend, which led to testing of the target area of 1.0878 - 1.0853. Today, buyers will try to break through this area and gain a foothold higher. If successful, the next target of the bulls will be the Golden Zone within 1.0945 - 1.0937.I suggest considering the entry into EUR/USD purchases on a corrective decline from the support areas 1.0811 - 1.0802 and 1.0769 - 1.0756. The goal is the maximum of today.
May 16, 2024 Read
DXY: the US dollar index has been declining all week
US Dollar Index, index, DXY: the US dollar index has been declining all week The trading idea for the US Dollar Index (DXY) on May 15, 2024The US dollar index (DXY) continues to fall for the third day in a row, developing the downward momentum that formed earlier this week. At the moment, the asset is trading at 104.75, ignoring both the growth of industrial inflation in the United States and the "hawkish" statements by the head of the Federal Reserve System (FRS) Jerome Powell.Yesterday, traders drew attention to the data on industrial inflation in the United States. According to a report by the U.S. Bureau of Labor Statistics, the producer price index (PPI) rose 0.5% in April compared to the previous month, significantly exceeding expectations of 0.3%. Annual data on the general and basic producer price indices also exceeded forecasts and amounted to 2.2% and 2.4%, respectively. Economists assume that the acceleration of industrial inflation caused by rising costs of production resources will eventually affect the prices of the consumer basket, which will lead to an increase in overall inflation. According to the latest survey by the Federal Reserve Bank of New York, most economists expect that the average annual inflation in the United States will be 3.3% in a year, instead of the previous forecast of 3%.Also yesterday, Fed Chairman Jerome Powell spoke at the general meeting of the Association of Foreign Bankers in Amsterdam, where he stressed that the economy had shown good results due to an extremely strong labor market, which, in turn, limits the regulator's ability to ease monetary policy. According to Powell, the Fed is no longer so confident that inflation will soon fall to the target level.The April Consumer Price Index (CPI) report is expected to be published today at 12:30 GMT, which will help to more accurately assess the prospects for the Fed's monetary policy. Forecasts suggest a decrease in annual inflation in the United States from 3.5% to 3.4%. If the actual data turns out to be the same or higher, the dollar's growth may begin with renewed vigor.We suggest including a DXY order in the trader's trading plan:Sell-Stop 104.50Take-Profit 103.00Stop-Loss 105.20
May 15, 2024 Read
EUR/USD: demand for risky assets sets records
EUR/USD, currency, EUR/USD: demand for risky assets sets records FOREX Fundamental analysis for EUR/USD on May 15, 2024No matter what statistics come out, investors will always hear what they would like to hear. Instead of reports of a 0.5% (mom) increase in producer prices in April, they talk about a 0.1% decrease in March. Instead of Jerome Powell's assurances about the extremely low probability of a rate hike in 2024, they heard that the Fed would be patient. Claes Knoth, head of the Bank of the Netherlands, announced a possible acceleration of inflation in Europe, and this, for fear of not being in time, pushed players to urgent purchases and sent the Nasdaq Composite to new records, and the EURUSD to five-week highs.According to an analysis by S&P Global Investment Manager Index, risk appetite has reached its highest level since the end of 2021. A survey of asset managers by Bank of America showed that the market has seen the maximum number of "bulls" over the past 2.5 years. Unsurprisingly, the risks of a reversal in the euro are now at their highest since February, and the weekly indicator of the US dollar has fallen below zero for the first time in two months. In such circumstances, safe haven assets are not popular, and investors are starting to look for other methods of forex trading.The greenback was not helped by Jerome Powell's statement that he was less confident in a further slowdown in price growth, and that it was necessary to wait for developments while carefully monitoring the dynamics of inflation. On the contrary, his remarks that the rates are already high enough to weaken demand only provoked the EURUSD bulls. A prolonged hold on rates at 5.5% could lead to a further slowdown in the US economy.In fact, overdue credit card payments in the United States have reached their highest level in many years, and recent economic data is more upsetting than encouraging. The United States stands in stark contrast to the Eurozone, where the economic surprise index remains stable. Reducing the gap in economic growth between the Old and the New World is becoming an additional incentive for buyers of EURUSD.The new US tariffs on $18 billion worth of Chinese goods announced by the White House do not help the dollar, although they may be a harbinger of trade wars. Customs duties on electric vehicles increased from 25% to 100%, on semiconductors and solar panels — from 25% to 50%, on steel and aluminum products — from 7.5% to 25%. Interestingly, Biden's team does not believe that such measures will lead to an acceleration of inflation, unlike Trump's intentions to impose duties of 10% on all imported products. U.S. Treasury Secretary Janet Yellen warned that China could respond. And Beijing does not deny this possibilityIn short, the thirst for profit overcomes the risks of trade wars, and Jerome Powell's words only fueled interest in the April consumer price report in the United States. The reaction to it may be completely different than to the output of PPI. If the indicator exceeds forecasts, this may reduce the fuse of the EURUSD bulls and force them to take profits, which, in turn, will cause a corrective decline. But if inflation slows down, it will only strengthen interest in the euro and push the pair to the $1.108 mark.EUR/USD Technical AnalysisYesterday, EUR/USD was on the news on US manufacturing inflation (PPI). updated the maximum of May 3. The next target of buyers in the further development of the short-term uptrend is the target area of 1.0878 - 1.0853. If the designated zone is also broken up, then the asset will rush to the golden zone in the range of 1.0945 - 1.0937.It is advantageous to look for new purchases of the instrument on a downward correction, starting from strong support levels of the regions 1.0744 - 1.0735 and 1.0702 - 1.0689. The first target for long positions will be today's maximum.
May 15, 2024 Read
EUR/USD: trend change signals are getting stronger
EUR/USD, currency, EUR/USD: trend change signals are getting stronger FOREX Fundamental analysis for EUR/USD on May 14, 2024Any economy is cyclical. For a long time, rising US inflation has kept rates high and supported the US dollar. However, it also reduced the real incomes of citizens and slowed down GDP growth. As soon as signs of a slowdown began to appear in the economy, optimism revived in the market. Investors are again waiting for a rate cut by the Federal Reserve System (FRS), as it was at the beginning of the year. This is a bad sign for the EURUSD bears.Goldman Sachs believes that in forex currency trading, before the release of the consumer price report in the United States, FOMO reigns - the fear of missing the opportunity to enter or the fear of lost profits. Investors are ready to buy stocks and bonds like hot cakes, which could lead to the rise of the S&P 500 index to new records and lower bond yields. This is the opposite of what happened before mid-April. In the second month of spring, the stock index showed its worst result since autumn, and bond rates rose to November highs, which supported the greenback through currency correlation.Market trends have changed dramatically, and the key to this is that after three months of growth in the consumer price index (CPI), investors expect it to slow down. This will lead to the resumption of the idea of large-scale monetary expansion by the Fed, in contrast to the two monetary policy easing acts expected by derivatives in 2024.Even the expectation of big steps by the European Central Bank (ECB) does not help the sellers of EURUSD. Goldman Sachs and Bloomberg forecast a 75 basis point reduction in the deposit rate to 3.25% by the end of December. Investors are scared by the divergence in monetary policy, which can lead to problems in the Eurozone due to the rising cost of imports, especially for an economy with high energy dependence, such as the European one.However, I will not agree with this. The problem of energy dependence would become acute if gas prices were as high as in 2022. At the moment, they are more than 10 times lower than they were then. The ECB has long hinted at a reduction in the deposit rate, so investors have already taken this aspect into account and are not worried about the weakness of the economy. Well, due to the fact that the factor of monetary policy easing has already been taken into account in prices, you should not expect a sharp decline in the EURUSD at the output of the actual data.In addition, high inflation in the United States constrains the growth of the American economy, while low inflation levels in the Eurozone stimulate it. The labor market remains strong, and real wages are rising, which contributes to the expansion of GDP. It is no coincidence that Bloomberg experts have raised the forecast for the Eurozone economy to 0.7% in 2024.It can be said that the hypothesis of a change in the direction of the EURUSD trend, expressed after the release of employment data in the United States, is beginning to be implemented. The slowdown in the April producer and consumer price indices in the United States will strengthen purchases of EURUSD formed from $1,073. We consider $1,108 as the nearest target.
May 14, 2024 Read
EUR/USD: dollar is losing the support of American exceptionalism
EUR/USD, currency, EUR/USD: dollar is losing the support of American exceptionalism FOREX Fundamental analysis for EUR/USD on May 13, 2024In order for American exceptionalism to lose its relevance and stop supporting the dollar in forex currency trading, it is necessary not only to slow down economic growth in the United States, but also to return inflation to a decline. Bloomberg economists' forecast of a slowdown in consumer price growth from 3.5% to 3.4% year-on-year and from 0.4% to 0.3% month-on-month was an incentive for further purchases of the EURUSD pair. However, the deviation of actual indicators from the forecast can radically change the fate of the main currency risk.The increase in inflation in the first quarter forced investors to reconsider their views on the prospects for the federal funds rate. If at the end of 2023 derivatives assumed 6-7 monetary expansion assets in 2024, then by the beginning of May this figure had decreased to 1-2. The decline in labor market activity has prompted investors to think that the policy easing cycle will begin in September, and the Fed will cut the rate from 5.5% to 5%. The April inflation data will be a kind of test point for this scenario.A signal that markets are still focused on consumer price indices (CPI) and personal expenses (PCE) in the United States is the growth of EURUSD against the background of accelerating inflation expectations from 3.2% to 3.5%. While the consumer sentiment index fell to its lowest level in the last 6 months. And this is quite understandable.The increase in inflation and the reduction in consumer spending contradict the forecast of a slowdown in the pace of price increases with an increase in real incomes. This may lead to a further decrease in the rate of GDP expansion in the second quarter, which will undermine the factor of American exceptionalism and put pressure on the US dollar.At this time, the rest of the world is giving positive signals, and Europe's economies are strengthening faster than expected. Eurozone GDP grew by 0.3% in January-March, and the British equivalent even by 0.6%. These are the best figures since 2021. After a rapid increase in imports in April, the rise in inflation in China confirms the acceleration of domestic demand. The global economy is moving away from American exceptionalism and moving towards synchronization. This is good news for the euro.However, what about the fact that Europe is moving towards monetary expansion faster than the United States, which in theory should put pressure on the currency of the Old World? The dollar is not only an American currency, but also a world currency. Its share in the gold and foreign exchange reserves of the world's countries is 58%, and 88% of all transactions in the Forex market are carried out with its participation. Therefore, the processes taking place in the United States are more important than the intentions of the ECB.So far, the assumption of a change in the direction of the EURUSD trend remains in force, but requires confirmation, primarily in the form of a slowdown in inflation in the United States. Before the release of an important release, there is a high probability of consolidation of the pair in the range of 1,072-1,080. Our forex trading strategy involves purchases with a decrease in the asset.EUR/USD Technical Analysis for EUR/USDEUR/USD is in a short-term uptrend. The pair has pushed off from the support area 1.0728 - 1.0720 and is heading towards the maximum for May 3. If the extremum is broken, then we assume a further increase in quotations to the target area of 1.0878 - 1.0853.In case of a transition to a downward correction, it will be possible to count on an update of the minimum from May 9 and a decrease in the pair to the area of 1.0686 - 1.0674. After reaching the key support, we will consider purchases with a target of 1.0810.
May 13, 2024 Read
USD/JPY: it has become dangerous to buy the yen
USD/JPY, currency, USD/JPY: it has become dangerous to buy the yen Trading idea for USD/JPYDuring Friday's trading session, USD/JPY remains near the level of 155.50. Moreover, this stability is observed for the second day in a row. The reason is simple - the lack of important economic news from the United States and Japan, as well as the indecision of traders due to fears of possible interventions from the Bank of Japan.The head of the Bank of Japan, Kazuo Ueda, stressed that the regulator is ready to take measures to strengthen the national currency, as a weak yen has an impact on consumer prices. He also mentioned a possible early increase in interest rates if inflation growth continues in the near future. Analysts believe that last week the Bank of Japan conducted two currency interventions worth $ 50 billion, but there were no official comments on this issue. Nevertheless, it has long been clear that only the intervention of the regulator could prevent further weakening of the yen. The Bank of Japan and the Ministry of Finance of the Land of the Rising Sun have repeatedly stated their readiness to take measures to reduce speculative pressure on the yen. The minutes of the Central Bank's meetings show that the majority of Council members adhere to a "hawkish" course, calling for further rate increases. Analysts are confident that the regulator will carry out an act of monetary restriction at least once more, most likely in the second half of this year. Macroeconomic statistics from Japan, published last week, did not have a significant impact on the dynamics of the pair. The index of leading indicators decreased slightly in March, as did the index of the current situation from Eco Watchers.Given the rhetoric of the Bank of Japan, its willingness to resist the actions of speculators and its intention to continue raising interest rates, the potential for a weakening of the Japanese yen is limited. In such circumstances, the USD/JPY pair is better considered in the perspective of a long-term decline.To sell USD/JPY, it is recommended to include an order in the trader's transaction diary:Sell-Stop 155.20 Take-Profit 153.00Stop-Loss 155.90.
May 10, 2024 Read
EUR/USD: the divergence of economic growth between the US and the Eurozone is decreasing
EUR/USD, currency, EUR/USD: the divergence of economic growth between the US and the Eurozone is decreasing FOREX Fundamental analysis for EUR/USD on May 10, 2024After a decrease in the number of open vacancies in March to a three-year low and an April slowdown in employment rates to the lowest level in six months, an increase in the number of applications for unemployment benefits in the United States to a maximum of eight months convinced investors of a slowdown in the American labor market. This increased the probability of two cuts in the federal funds rate in 2024 from 52% to 60%, reduced Treasury bond yields, returned the S&P 500 to the zone of record highs, which, through currency correlation, allowed the EURUSD bulls to go on the attack.Although applications for unemployment benefits are a weekly and highly fluctuating indicator, recent data indicate a cooling of the American economy. If the April inflation and retail sales data confirm this, the dollar will lose its position in forex currency trading.Even the Bank of England's "dovish" reversal did not help the EURUSD bears. Andrew Bailey, the governor of the Bank of England, highlighted progress in the fight against inflation and suggested that the REPO rate could fall faster than financial markets expected. The projected scale of monetary expansion in 2024 for the Bank of England is 55 basis points, for the ECB – 70 basis points, and for the Fed – 43 basis points.The upcoming slowdown in the US economy may be a strong argument in favor of buying EURUSD. The eurozone looks more dynamic compared to the United States. Its GDP is growing from a low base, while the growth of the US economy is slowing down from high rates. This reduces the divergence in economic growth, which contributes to the continuation of the euro rally against the dollar.Although the market already takes into account the earlier start of the ECB's monetary expansion compared to the Fed, it is still unclear whether the ECB will continue easing in July. Luis de Guindos, vice president of the ECB, stressed that the regulator does not seek a specific plan, but will make decisions based on data.Thus, the bet on reducing the gap in economic growth between the US and the Eurozone is working: EURUSD is sensitive to the deterioration of US macroeconomic statistics, as shown by data on applications for unemployment benefits. However, the main risks for breaking the EURUSD downtrend remain the presidential elections and the acceleration of inflation in the United States. Therefore, in anticipation of data on consumer and production price indices, consolidation of the euro against the dollar is possible. We are holding long positions on EURUSD, formed on the rebound from support at 1.0730.EUR/USD Technical Analysis for EUR/USDEUR/USD is growing in the format of a short-term uptrend. The target of buyers is the maximum from May 3. The intermediate target is 1.0793 resistance. If the pair updates the maximum on May 3, then the Target area of 1.0878 - 1.0853 will be the next target.The trend boundary has moved to the range 1.0689 - 1.0674. If this zone is reached during a corrective decline, then from here we will look for an entry into purchases with a target of 1.0793.To change the trend direction and form short positions, sellers need to break through and consolidate below the 1.0674 level.
May 10, 2024 Read
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