FOREX Fundamental analysis for EUR/USD on January 30, 2023
Markets have come to believe that the Fed's fight against inflation will not push the U.S. economy into a deep recession and expect a "soft landing.
Last Friday's Personal Consumption Expenditures report showed a decline from 4.7% to 4.4%. That means there is no reason for the Fed to rush to raise rates, and the regulator will only implement a 25 basis point monetary tightening in February.
According to CME derivatives, there is a 92% probability that the Fed will hold a 25-point rate hike twice in the first half of the year and may then proceed with a rate cut. There is an 82% probability that the regulator will conduct at least one rate cut this year. Further rate easing will only be possible if the recession has begun.
Not everything is so obvious with the European Central Bank. The futures market expects a 50 basis points rate hike in February and March, but the regulator's actions could be more decisive, as inflation in the Eurozone is higher than in the U.S., and rates are significantly lower. It is possible that the ECB will bring rates not to 3.25%, but to 3.75%. In this regard, the European Central Bank meeting this week is much more important to investors than the Fed meeting.
In fact, before the European regulator's meeting there will be important economic reports, which will surely influence the decision of the Governing Council. So, things may not turn out as they really are. Anyway, Christine Lagarde is in a tougher position than Jerome Powell.
But this week is not only important for the Fed and ECB meetings. Friday will be Non-farm Payrolls. Bloomberg predicts unemployment will rise to 3.6% and employment will fall to 185,000 jobs. Wage growth will also fall to 4.3%.
It promises to be a hot week. The volatility of currency pairs on forex may be off the charts on some days. Before the Fed meeting we continue to buy EUR/USD and buy the pair on the decline to 1.083. At the same time, if the buyers are unable to break above resistance at 1.093, we will get a signal to sell.