FOREX Fundamental Analysis for EURUSD on January 26, 2023
The European economy, which avoided a deep and undercurrent recession, is steadily recovering, while the clouds over the American economy are thickening. At any rate, the German government raised its 2023 GDP forecast from (-0.4%) to 0.2%. This keeps the euro stronger in forex trading and allows EURUSD to move towards the 1.095 target.
In the United States, the situation is getting worse. The U.S. economy grew faster than any other economy in 2022, allowing the dollar index to take the sole lead among other forex currency indices. This year, the U.S. economy is headed for a recession, brought about by the Federal Reserve's tight monetary policy.
However, despite the obvious reasons, not all analysts are confident in the forthcoming slump of the American economy. Of course, industry and real estate sector have already plunged into recession, but the strong labor market contradicts the overall picture. The Q4 GDP report due out today (13:00 GMT) may add to the issue. It is not unlikely that the statistics will pleasantly surprise dollar buyers.
And the data on the world economy may disappoint optimists as more than 500 analysts polled by Reuters unexpectedly cut their forecasts for 2023 and 2024. And 85% of respondents cite tightening of central bank monetary policy as the main reason for the downturn.
It is clear that the impact of tightening measures taken by regulators to combat inflation will affect the economy through the time lag. That is why it is possible that markets are overly optimistic about the first signals of lower inflationary pressure and the EUR/USD rally has gone too far.
I believe we will get the answers to all the questions in the coming days. Of great interest is the U.S. personal income/expenses report. If the consumer activity grows not by the expected 4.4% as Bloomberg's experts expect but by 4.8% according to the Fed's forecast, the necessity to increase the federal funds rate to 5.1% will disappear.
Of course, the closer is the date of the FOMC meeting, the lower is the volatility of currency pairs and the higher is the risk of EUR/USD consolidation. If the pair reaches the target area of 1.0950-1.0985, it is unlikely to break higher. In the specified area we will partially fix profits in longs.