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EUR/USD: The European Central Bank has not deviated from its plan

EUR/USD, currency, EUR/USD: The European Central Bank has not deviated from its plan

FOREX Fundamental analysis for EURUSD on March 17

In the atmosphere of an impending banking crisis the main goal of the ECB was not to cause any harm. The regulator might well have abandoned the monetary restriction or conducted it in a smaller volume, but Christine Lagarde's team acted according to the initial plan and raised the rate by 50 basis points.

Investors understood that the ECB is in control and still considers the fight against inflation in the Eurozone a priority. This is a good sign for the single currency, though the initial market reaction to the Central Bank's decision was a fall in EURUSD. The reason was clearly "dovish" signals of the regulator that refused a steady pace of rate hikes and lowered its forecasts for the year-end consumer price index from 6.3% to 5.3% and for 2024 from 3.4% to 2.9%.

European Central Bank Inflation Forecasts

European Central Bank Inflation Forecasts.

It appears that the ECB will finish the inflation battle faster than previously thought. In this regard, the futures market has quite logically lowered the maximum rate forecast from 4.2% to 3.2%. Confirmation of the fact that the cycle of monetary restriction is in the stage of completion is the fall of German 2-year bond yields below the ECB rate.

Dynamics of German bond yields and the ECB rate

Dynamics of German bond yields and the ECB rate.

However, it is likely that much in the ECB's actions will depend on external factors, in particular, on the situation in the banking sector in the United States and the Eurozone. If the situation stabilizes, the regulator will continue to raise the rate, the more so since Christine Lagarde said the Eurozone banking system is in excellent condition and assured that the ECB has enough funds to support the financial structure.

In the U.S. the big banks also expressed their willingness to support the First Republic Bank and provide it with additional liquidity worth $30 billion. This news supported the stock market, and through the correlation of currencies, the buyers of risky assets.

It's not impossible that the banking crisis will still make itself known, but the willingness of the Fed, the ECB and the major financial institutions to help the euro buyers in trouble. Our trading method on Forex remains the same - after EUR/USD returns we open longs, and after the pair's fixation above 1.0665 we will increase the longs.

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EUR/USD: ECB is also in no hurry to cut rates
EUR/USD, currency, EUR/USD: ECB is also in no hurry to cut rates FOREX Fundamental analysis for EUR/USD on April 12, 2024The ECB does not belong to the federal districts of the United States and does not repeat the actions of the Federal Reserve," said Olli Rehn, a member of the Bank's Governing Council, and this accurately reflects the situation. At the April meeting, the European Central Bank decided to leave the deposit rate at 4%, but hinted at a possible reduction in June. Frankfurt may start the process earlier than Washington, regardless of the Fed, which will negatively affect EUR/USD.Christine Lagarde noted that several ECB board members were ready to cut rates, but most are of the opinion that it is better to do so in June. This obliges the regulator to act, especially given the current dynamics of inflation. CME derivatives estimate the chances of a Fed rate cut in early summer at just 24%. Thus, Frankfurt can start monetary expansion first.Of course, the ECB does not depend on the policy of the Federal Reserve, but the United States remains the largest economy in the world, and news from there has an impact on the Eurozone. ING estimates that the effects of accelerating American inflation will be felt in Europe in about 6 months. Therefore, the futures market reduces the projected scale of monetary expansion not only by the Fed, but also by the ECB.The collapse of the EURUSD could have been even more serious if not only consumer prices had accelerated, but also producer prices. However, the PPI increased by only 0.2% mom. The underlying index also remained stable. This gives some respite for EURUSD, but does not change the overall positioning of forex currency trading.Boston Fed President Susan Collins notes that the urgency of lowering rates is not as important now as it was at the beginning of the year. Her colleague from the Federal Reserve Bank of New York, John Williams, believes that monetary policy adjustments are not required at all in the near future.The different timing of the start and the pace of rate cuts lead to an expansion of the difference in US and German bond yields, which creates conditions for the overflow of capital from Europe to North America and a further fall in the EURUSD to the area of 1.055.Although the euro may still surprise. The US corporate reporting season will begin next week, which may support the S&P 500 and increase appetite for risky assets, putting pressure on the dollar. However, an upward pullback of EURUSD will provide an excellent opportunity to sell the pair with an eye on 1.06 and 1.05.
Apr 12, 2024 Read
EUR/USD: US inflation is accelerating
EUR/USD, currency, EUR/USD: US inflation is accelerating FOREX Fundamental analysis for EUR/USD on April 11, 2024Even the Fed makes mistakes sometimes. The rapid slowdown in inflation in 2023 has given FOMC members a sense of confidence. They were ready to ignore the acceleration in prices in January-February, arguing that the overall picture has not changed. In their opinion, the trends in CPI and PCE remain "bearish", and eventually inflation will reach the target level of 2%. However, the third consecutive impulse of inflationary growth threatens to change the positioning of the Fed and cut off the oxygen to buyers of EURUSD.In March, consumer prices jumped to 3.5%, and core inflation froze at 3.8%. The disinflation process is clearly slowing down, forcing investors to change their forex trading methods. If earlier everyone was concerned about the date of the start of the Fed's monetary expansion cycle, now it is whether monetary policy easing will begin at all in 2024.Before the publication of US inflation data, market expectations for the start of monetary expansion in June were estimated at about 50%, but after the release they fell to 18%. Derivatives don't really believe in July either, preferring September. Expectations regarding the extent of the Fed's monetary policy easing have decreased from 65 basis points to 45 this year. 80 basis points are forecast for the ECB. And it is not surprising that with such a divergence of the monetary outlook, the EURUSD is fallingThe European Central Bank is doing everything possible to confirm its readiness to begin easing in June. That would be a compromise between the hawks and the doves. However, by summer, according to Bloomberg estimates, consumer prices in the Eurozone may fall to 1.8%, and economic growth will remain weak. The ECB will find itself in a difficult position. He will either be forced to cut rates at each meeting, or make a deeper cut at one of the meetings. Wouldn't it be better to start monetary expansion in April?Investors' attention has finally shifted from the start date to the speed of monetary policy easing. This is the exact opposite of the views of 2015-2016. Nine years ago, the Fed made it clear that it was going to raise rates, but constantly postponed this decision due to the weakness of the global economy. In the end, rates rose only twice - in December 2015 and in December 2016. The US dollar initially grew on expectations of monetary restriction, but then lost its position in forex currency trading.The strength of the American economy is so great that the Fed is forced to postpone rate cuts to a later period. The US dollar is confidently leading among the G10 currencies, although at the beginning of the year everyone predicted its rapid collapse.We expect the pair to continue falling. Even if US inflation starts to accelerate in April, the Fed will need additional data. We hold short positions from 1.0845 and periodically strengthen them on upward pullbacks.EUR/USD Technical analysisThe EUR/USD downtrend continued yesterday. The pair moved from the trend boundary of 1.0863 - 1.0850 to the Target area of 1.0729 - 1.0704. Today, sellers are likely to try to break lower. If the bears succeed, then the next target will be the Golden Zone 1.0645 - 1.0636. If buyers do not allow the quote to break below the target area, then we will wait for the development of a corrective movement.The nearest resistance area from which it will be possible to look for entry into short positions again is 1.0819 - 1.0810
Apr 11, 2024 Read
EUR/USD: Fed may abandon policy easing
EUR/USD, currency, EUR/USD: Fed may abandon policy easing FOREX Fundamental analysis for EUR/USD on April 10, 2024Where are you going, brave souls? Such thoughts come to mind when looking at the gratuitous rise of the EURUSD before the release of an important report on American inflation. The situation would be understandable if consumer prices really slowed down. However, the attempt by euro buyers to push the main currency pair to 1.09, based on ambiguous forecasts, seems at least bold. Actually, the result for the couple turned out to be expected. The European currency has taken a hit. Couldn't it have been different?The five-day rise of the EURUSD over the past six daily sessions looked, to put it mildly, strange. The American labor market is stronger than ever, the economy is even overheated somewhere, which, combined with a serious increase in commodity prices, accelerates the risks of inflation. And no one wants to go back to the 1970s, when the euphoria of winning over high prices ended in a double recession. The dollar is strong, but forex currency trading follows a strange scenarioWill the Fed even want to cut rates in 2024? The question remains open. The president of the Federal Reserve Bank of Atlanta, Rafael Bostic, said that in March he supported one act of monetary expansion, but is ready to change his position and abandon easing altogether if the labor market and the US economy continue to demonstrate their strength.The futures market assumes a 50% probability of an easing cycle starting in June and expects a rate cut of 65 basis points in 2024. This is less than the FOMC forecast in March. But in early spring, the Fed made a statement based on the "if". The regulator is ready to cut rates three times this year if inflation and the economy remain at certain levels. Unfortunately, both of these conditions are not met.A rise in the EURUSD to 1.09 would seem even more illogical against the background of market estimates of the scale of the ECB's monetary expansion in 2024. The European regulator is expected to cut the rate by 85 basis points. Investors expect more cuts from the European Central Bank than from the Fed. Moreover, the first of them may happen as early as April 11. And what is the point of buying euros?The winner is not the one who moves with the crowd, but the one who knows that the crowd is wrong. If it were not for the proximity of the release of inflation statistics in the United States, EURUSD could be safely sold on every wave of growth. However, when monetary policy depends on data, the actual CPI values can affect assets in either direction. No wonder the market is so nervous before this important event.Atlanta Fed President Rafael Bostic will be glad to see figures close to forecasts. However, he prefers to pay attention to details. Previously, investors tried to calculate PCE based on CPI. I think they are not going to give up on this idea now. In any case, strong statistics on US inflation for March will be a strong argument in favor of selling EURUSD with targets of 1.08 and 1.07. A break in the support level at 1.0845 will also be a signal for sellers of the euro. If the statistics are worse than expected, buyers will remain in favor.
Apr 10, 2024 Read
EUR/USD: Euro is growing on a global positive
EUR/USD, currency, EUR/USD: Euro is growing on a global positive FOREX Fundamental analysis for EUR/USD on April 9, 2024The American economy is showing strength, but the American currency is not strengthening. Despite the fact that the yield on US Treasury bonds has risen to maximum levels, the dollar shows no signs of growth, violating one of the main tenets of forex currency trading – a strong economy is a strong currency. The probability of a federal funds rate cut in June fell below 50%, but the EURUSD pair continues to grow. What's happening? Maybe the old forex trading strategies have outlived their usefulness? Why has the wind of change suddenly become favorable for the euro?If at the beginning of the year futures assumed a reduction in Fed rates by 150 basis points, and Bloomberg analysts predicted US GDP growth in 2024 by only 0.9%, then in early April futures indicate a reduction in rates by 62 basis points, and economists raised the GDP growth forecast to 2.2%.An additional confirmation of the strength of the American economy was the data on the labor market. An increase in employment by 303 thousand and a decrease in unemployment indicate strong consumer demand, which is an important component of GDP. The economy is on strong legs, and the leading indicator from the Atlanta Federal Reserve shows growth of 2.8% in the first quarter.While PIMCO has reduced the forecast for the number of acts of monetary expansion by the Fed in 2024 to two, fewer investors in the market expect inflation to quickly return to 2%. At the same time, the growth of commodity market indices increases the likelihood of further growth in consumer prices. In this case, why would the Fed move to ease financial conditions at all?In addition, a strong economy and a change in the outlook for the Fed rate coincide with the geopolitical situation and the US presidential election. As a result, EURUSD should confidently move towards parity. But in practice, the opposite happens - the pair continues to grow.The euro is a pro-cyclical currency that is sensitive to the improvement of the global economy. Positive news from China and the Eurozone, together with strong releases from the United States, create prerequisites for strengthening the EURUSD rate. Thus, industrial production in Germany increased by 2.1% in February. Moreover, the growth rate was recorded for the second month in a row. The European Sentix index has reached its highest level since February 2022. Add to this the proximity of the S&P 500 index to record values, which indicates a high interest of investors in risky assets, and the strengthening of the euro begins to seem quite logical.However, in my opinion, what is happening with the main currency pair is just a temporary lull. Investors are waiting for US inflation data for March and are trying to determine whether the spikes in consumer prices in January and February were temporary or the beginning of a new upward trend. If prices exceed Bloomberg forecasts - 3.4% (YoY) and 0.3% (mom), then EURUSD may face trouble.The main currency pair is trying to project European optimism and faith in the global economic recovery. However, will EURUSD buyers have enough strength to keep the pair above the 1.0845 level? If not, we will get a signal to start selling.EUR/USD Technical analysis EUR/USD is trying to break above the resistance 1.0863 - 1.0850. If this area does not stand, then we can say about a change in the direction of the short-term trend to an upward one. In this case, after fixing the price, it will be possible to consider buying the pair with a target at the upper limit of the target range of 1.1001 - 1.0976.If sellers hold the resistance and the corresponding trading pattern is formed, then it will be possible to form short positions with the nearest target at the minimum of April 5. If the price fixes below the extreme, then the next target will be the minimum level on April 2.
Apr 09, 2024 Read
EUR/USD: the pivot level passes through 1.0845
EUR/USD, currency, EUR/USD: the pivot level passes through 1.0845 FOREX Fundamental analysis for EUR/USDWhen a currency does not go in the expected direction, it is likely to go in the opposite direction. But will this be true for EURUSD? Maybe not this time! The reaction of the main currency pair to the US employment data did not meet expectations. With excellent data, the Bears were unable to maintain their advantage. The Fed's firm stance on lowering rates, even with steady economic growth, was to blame for this. But what if the Central Bank changes its rhetoric?The growth of non-farm payrolls by 303 thousand in March, an upward revision of 22 thousand in January-February, as well as a decrease in unemployment from 3.9% to 3.8% seemed to be significant factors in support of the greenback. However, buyers of EUR/USD focused on reducing the growth rate of wages to 4.1%, the lowest since June 2021, on the growth of US stock indices and on forecasts by Bloomberg experts about an increase in consumer prices and core inflation in March by only 0.3%.The S&P 500 went up amid expectations of a favorable impact of a strong economy on corporate profits. An increase in global risk appetite through the correlation of currencies and indices has put pressure on the US dollar. However, the main reason for the fluctuations in the EURUSD exchange rate was the change in the Fed's position.If in 2022-2023 the Fed believed that rapid economic growth would make it difficult to combat high inflation, then in 2024 it is ready to loosen monetary policy even with a favorable GDP. This conclusion was made by investors, focusing on the speeches of Jerome Powell. However, the Fed is not just one person, even the most authoritative one. More and more FOMC members are in favor of a "hawkish" course. So, Michelle Bowman said that the Central Bank has not yet reached the point where it would be advisable to lower rates. The risks of a new round of inflation are still high. The president of the Federal Reserve Bank of Dallas, Laurie Logan, noted that it is too early to talk about monetary expansion.Fed officials unanimously declare slowness, but the longer they are in standby mode, the greater the risks that the Fed will not eventually cut rates this year. The upcoming US presidential elections may also contribute to this. The central bank may refrain from easing monetary policy so that it is not accused of supporting the current government.The market is increasingly moving away from the FOMC's March forecasts. The chances of a rate cut in June fell to 48%, and the probability of three acts of monetary expansion in 2024 decreased from 66% to 56%.It is not particularly clear how the EURUSD can strengthen in such an environment. Perhaps investors have remembered the principle of "don't go against the Fed"? However, the final decision of the Central Bank will depend on the inflation data. Perhaps the rebound of the euro was caused by the closing of shorts before an important event. Is it worth opening positions on the eve of the release of important statistics? I don't think that's a good idea. We are watching 1.0845. The pivot level of the main currency pair passes here.EUR/USD Technical analysisYesterday, EUR/USD tested the boundary of the short-term downward trend of 1.0863 - 1.0850. Sellers were able to hold the zone and did not let buyers go higher. We will consider selling the pair in the direction of the minimum of April 2.If yesterday's high is updated on Friday at the news release and EUR/USD is fixed higher, then the trend direction will change to an upward one. In this scenario, starting on Monday, we will look for entry points to purchases with a target at the upper limit of the channel 1.1001 - 1.0976.
Apr 08, 2024 Read
EUR/USD: US dollar is strong, but markets are waiting for NFP
EUR/USD, currency, EUR/USD: US dollar is strong, but markets are waiting for NFP FOREX Fundamental analysis for EUR/USDNo matter how much EUR/USD buyers would like to reverse the downward trend, the laws of economics are strictly followed. In light of weakened consumer activity and GDP, inflation in the Eurozone is actively declining, while in the United States the process is slowing down.This justifies market expectations about a more active start to the ECB's monetary expansion cycle compared to the Fed, as well as the scale of rate cuts. The rise in the exchange rate of the main currency pair is just a temporary correction, which does not imply a change in forex trading strategies.The forecasts of the European Central Bank suggest that consumer prices will return to the 2% target by 2025, however, according to. According to Bloomberg analysts, in the summer the indicator may fall below this level, and by the beginning of next year it will fall to 1.4% altogether. The ECB knows well how difficult it is to fight deflation. Perhaps it makes sense not to bring the situation to this and consider the possibility of loosening monetary policy sooner than markets expect.According to the minutes of the March meeting of the ECB Governing Council, wage growth is slowing down, and companies are increasingly absorbing high costs, preventing prices from rising. Inflation is steadily moving towards 2%, which justifies the talk of lowering rates. The futures market expects the ECB to reduce the cost of borrowing by 90 basis points, while the Fed will reduce them by only 70 bps in 2024, which creates conditions for the restoration of the "bearish" EURUSD trend.Perhaps the start of the Fed's monetary expansion will not happen until June. Minneapolis Fed President Neil Kashkari had previously predicted two rate cuts in 2024. However, if inflation continues to rise, the question will arise as to whether the Central Bank should have eased monetary policy at all. His colleague from the Richmond Fed, Thomas Barkin, believes that it is wiser to wait to avoid the likely return of high inflation. Patrick Harker of the Philadelphia Fed emphasizes that inflation is still too high and the economy is overheated.The "hawkish" rhetoric of FOMC members has become a cold shower for EURUSD buyers. The three-day rally of the main currency pair ended quickly. However, the Fed's opinion may currently change under the influence of new data. Statistics on American employment can be a key factor in decision-making by Jerome Powell's team.If the US labor market remains positive, it will increase the likelihood that the federal funds rate will fall no more than twice in 2024, and expectations for the start of the monetary expansion cycle may shift from June to July. This means that the EURUSD will continue to fall. On the contrary, a serious deterioration in statistics may be the first signal of a cooling economy and lead to a more aggressive easing of the Fed's monetary policy, which will lead to a sell-off of the US dollar in forex currency trading. While the euro is trading below $1.0845, we keep the focus on sales.EUR/USD Technical analysisYesterday, EUR/USD tested the boundary of the short-term downward trend of 1.0863 - 1.0850. Sellers were able to hold the zone and did not let buyers go higher. We will consider selling the pair in the direction of the minimum from April 2.If yesterday's high is updated on Friday at the news release and EUR/USD is fixed higher, then the trend direction will change to an upward one. In this scenario, starting from Monday, we will look for entry points to purchases with a target at the upper limit of the channel 1.1001 - 1.0976.
Apr 05, 2024 Read
USD/JPY: the Japanese Ministry of Finance keeps traders on their toes
USD/JPY, currency, USD/JPY: the Japanese Ministry of Finance keeps traders on their toes Trading idea for USD/JPY on April 4, 2024USD/JPY is in a sideways range near the 151.60 mark near the 30-year highs.The US dollar is supported by the rhetoric of representatives of the Federal Reserve System (Fed) and confident macroeconomic indicators of the United States. Yesterday's report from Automatic Data Processing (ADP) showed that private employers attracted 184 thousand new employees last month, exceeding forecasts by 148 thousand and the previous 155 thousand. The president of the Federal Reserve Bank of Cleveland, Loretta Mester, stressed that easing monetary policy too early poses a great threat, especially with stable growth of the American economy and a strong labor market. These words are confirmed by the latest data from ADP and allow the Fed to take its time with monetary expansion, Jerome Powell holds the same position.It is assumed that the US regulator will not rush to change the course of monetary policy, which may further strengthen the dollar in the coming weeks.The yen's decline is hampered by market expectations of possible interventions in forex currency trading by the Japanese Ministry of Finance. Comments by Finance Minister Shunichi Suzuki that the authorities will take all necessary measures to stabilize the exchange rate of the national currency support this idea. Despite the statements of the monetary authorities, the yen remains under pressure, which increases the likelihood of continued growth of the pair. Market sentiment shows that the majority of traders (80%) are in short positions on USD/JPY. This increases the likelihood of a movement against the opinion of the crowd. We suggest continuing the purchase of USD/JPY and placing an order:Buy Stop at 151.80, Take Profit 153.50 Stop loss at 151.00.
Apr 04, 2024 Read
EUR/USD: traders close sales
EUR/USD, currency, EUR/USD: traders close sales FOREX Fundamental analysis for EUR/USD on April 4, 2024When Jerome Powell starts talking, the others fall silent. The Fed Chairman, commenting that the overall picture of inflation has not changed and it is still striving for the 2% target, despite the difficulties of the path, as well as that the strength of the US economy will not violate the Central Bank's intentions to lower rates, pushed EURUSD to rebound. The massive fixing of speculative longs for the US dollar, which reached a maximum in December 2022, allowed the main currency pair to return above 1.08.The Fed is not going to abandon plans to cut rates in 2024. And although the management of the regulator understands that there will be obstacles in the way of inflation, but this will not change the plans of the Central Bank. The acceleration of the CPI and PCE indices in January-February did not affect the Fed's positioning. Moreover, today it is clear that the US economy is beginning to show signs of slowing down.When even weak sectors of the American economy give recovery signals, the US dollar strengthens. This happened with ISM's business activity in the manufacturing sector, which exceeded the key 50-point mark for the first time in 16 months. However, a serious slowdown to 51.4 in March in the index of business activity in the service sector, a strong sector of the US economy, had the opposite effect. The process of fixing speculative longs for the US dollar accelerated, which brought the EURUSD pair to 1.0845. Nevertheless, the dollar index still looks confident among other forex currency indices.It seems to me that Jerome Powell's words that the strength of the US economy will not prevent the Fed's monetary expansion finally convinced investors to cut rates in June. And also on the scale of monetary policy easing, announced in the FOMC's March forecasts. For the past week, the probability of these events has remained virtually unchanged.Another thing is that derivatives expect higher rates in the long run than the Fed forecasts. Forecasts say 3.6% in 2027, compared with 2.6% in the latest FOMC estimate. This suggests that the strength of the American economy will allow it to withstand high borrowing costs for the long term. Therefore, if the US dollar weakens, it will not be too much.Reuters experts expect EURUSD to rise to 1.09 and 1.1 levels by the end of June and September, respectively. This means that the euro will not be able to fully compensate for losses either at the beginning of the year, or in three or six months.We continue to believe that the rebound of the main currency pair was the result of traders fixing short positions in front of important statistics on the American labor market, as well as against the background of Jerome Powell's speech and published data on PMI in the services sector, which accelerated this process. However, final conclusions can be drawn only after the release of Non-farm Payrolls employment data. Until EURUSD can stay above 1.0845, we will focus on sales.EUR/USD Technical AnalysisOn Thursday, EUR/USD approached the border of the short-term "bearish" trend of 1.0863 - 1.0850. Until this area is broken up, it makes sense to consider selling from it with a goal at the minimum level on April 2. To enter short positions, you should wait for the appropriate signal. The intermediate target for sellers, where it will be possible to fix part of the profit, will be the level of 50% of the fibo grid, thrown over the correction of price growth on April 2-4.If the resistance is still broken today, and the American trading session closes above this benchmark, then the short-term trend will change to an upward one. In this case, starting from Friday, we will look for an entry into purchases with a target at the upper limit of the channel 1.1001 - 1.0976.
Apr 04, 2024 Read
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