FOREX Fundamental Analysis for EUR/USD on September 27
The Fed is facing a rather difficult task - fighting inflation without the economy going into recession. Now the introduction is made a bit more complicated by the risk of a government shutdown. Based on historical calculations, all this does is delay the release of important reports, such as labor market statistics or inflation data. And making decisions without proper justification is quite difficult and not always the right thing to do. But, as usual, any uncertainty in forex trading increases the demand for the US dollar.
Besides, if the US lawmakers fail to solve the budget issue by October 1, some federal employees will go on forced vacations, and 4.5 million people risk to remain without salaries, which will hit the consumer demand and, consequently, the GDP of the United States.
In the medium term, the artificial recession will increase the risks of recession, especially since the resumption of student loan payments and the act of monetary restraint from the Fed are ahead. Moreover, strikes of workers in the automotive industry and rising oil prices do not contribute to economic growth, but they can increase the risks of inflation. All the more so because the signals of slowdown continue to come from time to time. For example, the consumer confidence index in September fell to a 4-month low.
Moody`s has already made it clear that the US will lose its top credit rating in a government shutdown. After a similar August decision by Fitch, investors began to actively withdraw capital from treasures, which caused bond yields to rise and the dollar to strengthen. So, in this scenario, EUR/USD sales will only intensify.
FOMC officials also contribute to the strengthening of the greenback periodically stating the need to continue the "hawkish" course of monetary policy. The Fed leadership is trying to convince investors that even if the tightening cycle is over, the rates will remain at 5.5% for quite a long time. With such a backdrop, the demand for risks will not grow.
The first of October is approaching, and with it the tension about the government shutdown is growing. There are no reasons to buy EUR/USD. The pair is steadily declining to the targets of 1.051 and 1.042. Let's keep selling.