FOREX Fundamental analysis on February 20, 2024
It 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.
Trading idea for the Dollar Index (DXY) dated July 26, 2024During the Asian session on Friday, the dollar index (DXY) continues to consolidate around 104.00. The volatility of currency pairs is low, as traders expect the publication of important macroeconomic data from the United States, which may affect the prospects for monetary policy of the Federal Reserve.Yesterday's report on US GDP for the second quarter showed growth of 2.8%, which is significantly higher than the forecast of 2%. This raises concerns that rapid economic growth is capable of accelerating inflation, which in turn may force the Federal Reserve System (Fed) to postpone monetary policy easing. Also, weekly labor market data showed that the number of initial applications for unemployment benefits increased to 235 thousand, which was lower than the forecast of 237 thousand and the previous value of 245 thousand, while the total number of citizens receiving assistance decreased from 1.860 million to 1.851 million. Despite this, market participants are still confident that the Fed will cut the rate at the September meeting. According to the FedWatch Tool, the probability of such a scenario is almost 100%. William Dudley, former president of the Federal Reserve Bank of New York, believes that rates should be lowered as early as next week at the July 30-31 meeting, otherwise it may be too late in September.Today, traders' attention is focused on data on the Personal consumption Expenditure Index (PCE) in the United States, which is the Fed's preferred indicator for assessing inflation. The PCE index for June is expected to decrease from 2.6% to 2.5%. If the forecasts are confirmed, this will indicate a continuation of the downward trend in inflation, which will increase the likelihood of monetary policy easing at the next meetings. In this regard, DXY has the potential to decrease.Recommendations:Sale of DXY at the breakdown of the 103.80 levelTarget (TP): 103.00Stop Loss (SL): 104.10 
USD/JPY is near the 153.65 mark, while the yen remains stable due to neutral macroeconomic statistics, which in this case plays the role of support.The consumer price index in Tokyo remained at 2.3% year-on-year, while the core index excluding fuel and food prices increased slightly from 2.1% to 2.2%. The price index for corporate services increased from 2.7% to 3.0%, which is higher than preliminary estimates of 2.6%. This significant increase in the cost of corporate services indicates a possible continuation of high inflation and provides the Bank of Japan with grounds for tightening monetary policy. According to Reuters, this issue will be discussed at a meeting on July 31. The government's monthly report also indicates a recovery in the country's economy, but a slowdown in export growth may have a negative impact on GDP.Meanwhile, the US dollar index is trading near the 104.00 level as part of a corrective trend. The American currency practically does not react to macroeconomic indicators, as the internal tension in the United States is so great that traders are in no hurry to open new positions, waiting for additional signals from the authorities. Recently, President Joe Biden explained in his address to the nation the reasons for his refusal to participate in the elections and confirmed his intention to serve as president until the end of his term. This event distracted attention from the GDP report, which showed economic growth in the second quarter to 2.8% from 1.4%, as well as from labor market data, which recorded a decrease in the number of applications for unemployment benefits to 235 thousand from 245 thousand.On the daily chart, the pair has moved beyond the multi–month ascending channel with the boundaries of 163.00-156.00 and continues to decline.The indicators suggest a sale. The fan of the average alligator indicator has correctly opened downwards, and the awesome oscillator indicator forms descending bars in the sales area.If the asset continues to decline and consolidate below the key support level of 153.00, we will open sales with a target of 150.80. We will set the stop loss at 154.00.We will consider purchases if the pair overcomes the resistance level and continues to grow, gaining a foothold above the 154.70 mark, we will designate 157.70 as the target. We will put the stop loss at 153.00. 
FOREX Fundamental analysis for EUR/USD on July 26, 2024Desire is not harmful, its absence is harmful. Donald Trump is aiming for a weak dollar, but the facts tell a different story: from a fundamental point of view, the American currency is not overvalued. Finance Minister Janet Yellen notes that in recent years the United States has maintained a "hawkish" monetary policy with higher rates compared to other countries, which attracted capital and strengthened the dollar. Since Joe Biden took office, the dollar index has increased by 15%.Regardless of who wins in November – Republican or Democrat – he will inherit a strong economy. GDP in the second quarter unexpectedly accelerated from 1.4% to 2.8%, which is significantly higher than Bloomberg forecasts of 2%. Even more impressive is the growth in the index of personal consumption expenditures – from 2.7% to 2.9%. These data hint that either the June PCE will be significantly higher than forecasts, or the data for April-May will be revised upwards, which is favorable for the "bears" in EUR/USD.The US economy is strong, and Trump intends to further stimulate it. His policy of new tariffs on imports will slow GDP growth outside the United States and revive the theme of American exceptionalism, which has supported the dollar in recent years.With a strong economy, weak inflation is impossible, and the resumption of trade wars will only accelerate price increases due to supply chain disruptions, as it was during the pandemic. The Fed will either have to keep the rate at the current level, or tighten policy again. The dollar will strengthen because that's how the financial system works.In the last presidency, Trump tried to fight this system, calling Jerome Powell America's number one enemy and sought to weaken the greenback in all available and inaccessible ways, although unsuccessfully. Political pressure on the Fed and interference in forex currency trading will lead to instability and force investors to seek refuge in the dollar, which will once again strengthen the position of the greenback.If someone wants a weak dollar, it is not worth resuming trade wars or introducing new fiscal incentives. In the current state of affairs, the US economy will slow down, and the Fed will ease policy, which will lead to an increase in EUR/USD. But it is difficult to convince Trump of this. Our forex trading strategy has not changed yet. While the pair is trading above 1.083, we will stick to purchases. Falling below this level will open the way for the formation of short positions. 
GBP/USD analysis on July 25, 2024After a significant increase at the beginning of the month, this week, against the background of the correction of the US dollar, the quotes of the GBP/USD pair turned down. During Thursday's Asian session, the pair is trading near the 1.2888 level.The movement of sterling is coordinated by UK macroeconomic statistics. The index of business activity in the manufacturing sector increased from 50.9 to 51.8 points, and in the services sector — from 52.1 to 52.4 points, which led to an increase in the composite indicator from 52.3 to 52.7 points. This gives investors hope for the strengthening of the British currency, at least until the publication of reports on the labor and real estate market next week. The indicators are recovering after the uncertainty caused by the parliamentary elections, which may accelerate GDP growth, but most experts believe that the active actions of the Bank of England will begin no earlier than autumn.The dollar index is trading at 103.90. A recent report on second home sales showed a decrease from 4.11 million to 3.99 million, and the volume of sales of new homes decreased from 621.0 thousand to 617.0 thousand, which is the lowest since November. High interest rates on 30-year mortgages, despite the correction from 6.87% to 6.82%, continue to restrain purchasing activity in conditions of high inflation.On the daily chart, the pair retreats from the resistance line of the ascending channel 1.3070–1.2750.Technical indicators are turning downwards, but they still do not give confident sell signals. The fan of averages on the alligator indicator is intertwined and preparing for a reversal, the awesome oscillator indicator forms decline bars, but remains in the buy zone.It is recommended to open short positions when the price decreases and fixes below the level of 1.2860. We consider 1.2750 to be the nearest target. We will set the stop loss at 1.2910.We will open purchases with an increase and consolidation of the price above 1.2930 with a target of 1.3040. In this case, we put the stop loss at 1.2880. 
On Thursday, AUD/USD stabilized near the 0.6547 mark and continues to form the "expanding formation" pattern with dynamic boundaries between 0.6800 and 0.6300.Analysts are discussing possible steps by the Australian monetary authorities. Deutsche Bank points to household doubts about achieving the inflation target of 2.0–3.0%, confirmed by a survey by the Melbourne Institute, where only 15% of respondents are confident in the recovery of the consumer price index after the pandemic. Roy Morgan believes that the tax cuts that began this month could reduce the number of households experiencing mortgage stress if the labor market holds up and the RBA does not raise interest rates. The unemployment rate rose to 4.1% in June, making a rate hike less likely. However, persistent inflation may force the RBA to raise rates by 25 basis points in August, which will create additional pressure on borrowers. According to Roy Morgan, more than 1.6 million mortgage holders faced repayment problems, which is 88 thousand more than in the previous month, and the number of those who are "extremely at risk" exceeded 1.016 million people, or 20%.Westpac Banking Corp. estimates the probability of an increase in the RBA's key rate at 30%, and a reduction is not expected until August 2025. The indices of business activity in the manufacturing sector and the service sector showed slight changes: from 47.2 to 47.4 points and from 51.2 to 50.8 points, respectively.In the United States, similar statistics showed a decrease in the manufacturing sector from 51.6 to 49.5 points and an increase in the service sector from 55.3 to 56.0 points. This increased the composite value from 54.8 to 55.0 points, confirming the stability of the economy to the "hawkish" policy of the US Federal Reserve. A Reuters poll showed that most analysts expect a rate cut in September and December, with an 86.8% chance of an autumn adjustment.Trading patterns indicates an "expanding formation" model with boundaries of 0.6800–0.6300 on the daily AUD/USD chart. Technical indicators recommend selling: the alligator moves have turned down, and the awesome oscillator histogram is declining in the sales area.It is recommended to open short positions only after the price is fixed below the support of 0.6530.The highest target is 0.6450. We put the stop loss at 0.6590.Purchases are rational after fixing the pair above the level of 0.6570 with a target of 0.6660. We will set the stop loss at 0.6510. 
FOREX Fundamental analysis for EUR/USD on July 25, 2024The recent rise in the EUR/USD exchange rate from support at 1.825-1.0835 was triggered by rumors of an economic cooling in the United States and the beginning of Kamala Harris's "honeymoon". However, positive US PMI data and a drop in stock indices through currency correlation returned the advantage to greenback buyers. Investors are now considering whether to abandon Trump trade, fearing a recession, and are waiting for GDP data for the second quarter.It should be noted that Kamala Harris differs from Joe Biden for the better, since with her entry into the election race, the gap between the candidates from the Republican and Democratic parties has narrowed. A Reuters/Ipsos poll showed Harris beating Trump by 2 percentage points. The Democrats' victory in the White House may ease political pressure on the Fed, which will allow the regulator to follow the chosen course of monetary policyFormer head of the Federal Reserve Bank of New York William Dudley believes that rate cuts should begin as early as July to avoid a recession. The growth of the yield differential indicates market expectations regarding aggressive easing of the Fed's policy.Rumors of a recession, the weakening of the influence of Trump trade and expectations of a rate cut increased confidence in monetary expansion in September, which stabilized EUR/USD, despite weak European statistics. Disappointing data on business activity in Europe has become a cold shower for market optimists.Things are better in the USA. The composite PMI index has peaked since April 2022, and Bloomberg forecasts GDP growth of 2% in the second quarter. This calls into question the need for aggressive monetary expansion by the Fed and supports the "bears" on EUR/USD, especially given the increased demand for the dollar as a safe haven currency.The drop in the value of Tesla and Alphabet shares and the decline of the S&P 500 by $768 billion increased demand for the dollar. This broke a 356-day streak without the index falling by more than 2%, which was the worst day since December 2022.The alignment of the candidates' positions in the US presidential race returns investors' attention to data affecting the Fed's monetary policy. The risks of a fall in EUR/USD remain, but the potential for a pullback is limited. A consolidation range of 1.08-1.095 is probably forming. A return of the pair above 1.0865 will increase purchases opened in the area of 1.0825-1.0835. 
On Wednesday, USD/JPY is in a short-term downtrend and is trading at 154.58, which investors see as a correction due to currency interventions by the Bank of Japan.Japan's macroeconomic data remains weak. The core consumer price index remained at 2.1% compared to the same indicator a year earlier. The index of business activity in the manufacturing sector in July decreased from 50.0 points to 49.2 points, and in the services sector increased from 49.4 points to 53.9 points. Experts believe that the weakness of the yen is causing concern among Japanese politicians who are trying to put pressure on the Central Bank to increase the cost of borrowing. However, most likely, at the July 31 meeting, interest rates will remain unchanged, and the adjustment of monetary policy will be postponed to the autumn.The dollar index is trading at 104.10, almost unresponsive to the June report on sales in the secondary housing market, which showed a decrease from -0.7% to -5.4%, which corresponds to an annual minimum. Today at 16:00 (GMT+2), new home sales data will be published, which is an important indicator of the American construction market. A correction is expected from 619.0 thousand to 639.0 thousand earlier.Technical analysis indicators indicate a sale. The averages on the alligator indicator have adjusted downwards and are opened correctly, and the awesome oscillator forms descending (red) bars in the sales area.We will open short positions after the price decreases and fixes below the key level of 154.10. We consider 151.80 as the target. We will place the stop loss at 155.50.In case of a breakout of resistance with subsequent growth of the asset, we wait for the price to consolidate above 155.40 and open purchases with a target of 157.70. We will place a stop loss at 154.00. 
FOREX Fundamental analysis for EUR/USD on July 24, 2024July turned out to be a month of struggle between the Fed's monetary policy and the political risks associated with Donald Trump. In the first half of the month, the weakening of the labor market and inflation in the United States increased the likelihood of a reduction in the federal funds rate in September from 73% to 100%, which caused an increase in EUR/USD. However, in the second half of the month, the situation changed dramatically. Investors were seriously concerned about the policy of the Republican leader, which led to a strengthening of the US dollar.UBS predicts that the introduction of 60% tariffs on Chinese imports will slow down China's GDP growth by 2.5 percentage points. China's economy is expected to grow by 4.6% in 2025 and 4.3% in 2026, but in the event of a trade war, this growth could fall below 3%. The eurozone, already struggling because of China, will suffer even more. A small rate cut by the People's Bank of China is unlikely to significantly change the situation.Large companies in the European Union report a decrease in revenues in trade with China. Goldman Sachs recommends selling shares of European brands, and so far this strategy is justified. Deterioration of corporate results may lead to mass layoffs and a decrease in production, which will negatively affect the Euroblock's GDP.The biggest problems due to Trump's new tariffs await Germany, which accounts for half of EU exports to China. The slowdown in Asia's largest economy has been a long-term trend, but until recently it was offset by U.S. GDP growth. Now that the American economy is slowing down, Europe's recovery is under threat.In forex currency trading, the Euro is associated with optimism, and the dollar is considered the currency of pessimists. Therefore, against the background of the correction of the S&P 500, the potential slowdown in global GDP due to the resumption of trade wars and the political chaos that Trump may bring, EUR/USD is falling. Political pressure on the Fed to aggressively lower rates and return to the practice of currency interventions within the framework of a weak dollar policy also plays a role.Investors got distracted from the Fed and immersed themselves in Trump trading, which, in my opinion, came to the markets too early. We must pay tribute to Trump: the debate won and the assassination attempt strengthened his position in the election race, which, of course, influenced the EUR/USD exchange rateMost likely, the Trump trade will remain in force until November, and investors will return to the Fed's policy at the beginning of the month after the publication of employment and inflation data. A roller coaster awaits EUR/USD, and its further fate, and at the same time, forex trading methods, depend on the pair's ability to stay above 1.083. If this succeeds, there will be a chance to restore the uptrend. Otherwise, you will have to sell before the release of US labor market data for July.