FOREX Fundamental analysis for EUR/USD on April 17, 2024
Appetite comes with eating. After the Fed took the first steps towards a dovish reversal in December, markets began demanding 6-7 rate cuts from the central bank in 2024. However, after the publication of data on March inflation in the United States, investors began to discuss the possible resumption of the monetary policy tightening cycle. Jerome Powell's statement that the Federal Reserve is not considering a rate hike calmed the market, and the EURUSD pair began to strengthen.
The head of the Fed and his deputy, Philip Jefferson, said that restraining monetary policy should have more time to assess the effectiveness of its impact. This means that the federal funds rate will remain at 5.5% for longer than previously expected. The central bank is unlikely to cut the rate without a significant weakening of the economy. In light of such statements, expectations for the start of the monetary expansion cycle in June decreased to 15%, in July – to 41%. September remains the main candidate for the start of the process, but the final decision of the Fed will depend on the input data.
Strong reports on the labor market, inflation and retail sales in the United States, as well as the "hawkish" rhetoric of FOMC members, push the yield of 10-year treasury bonds up, allowing the dollar index to lead among forex currency indices. The difference in yields between American and German bonds has increased by 30 basis points since the beginning of 2024 to 220 bps. A year ago, this figure was 110 basis points. This is also a bearish factor for EURUSD.
The federal funds rate is expected to fall by 41 basis points by the end of December, and the ECB deposit rate by 80 basis points by then. The rhetoric of the ECB Governing Council members supports such market forecasts. Christine Lagarde said that unless there are serious shocks, the Central Bank will ease monetary policy. Most likely, this will happen in the near future. The head of the Bank of France, Francois Villaroy de Galo, expressed the opinion that after the start of the cycle in June 2024, the rate should also be reduced in 2025.
The updated IMF forecasts support the euro. According to the fund's analysts, the global economy will grow by 3.2% this year, which is 0.1 more than previously forecast. However, estimates for the Eurozone were reduced by 0.1 points to 0.8%. It seems that the American economy continues to be a priority, which supports the EURUSD bears.
The current situation with EURUSD may lead to consolidation or even correction of the pair after the breakout of resistance at 1.065 and 1.0665 levels. However, the ECB's willingness to get ahead of the Fed in the cycle of monetary expansion limits the upward pullback of the EURUSD.
Technical analysis for EUR/USD
EUR/USD maintains a short-term downtrend. On Tuesday, sellers were able to break through and gain a foothold below the "golden zone"1.0645 - 1.0636. The next target for the bears is the target area 2 between 1.0561 and 1.0544. It is advisable to consider a new entry into sales on correction after testing strong resistance levels, which today are: areas 1.0693 - 1.0685 and 1.0739 - 1.0727. The nearest target for sellers is Tuesday's minimum.
An alternative option. If EUR/USD meets the target on Wednesday and updates yesterday's low, then the target correction levels will need to be revised.