FOREX Fundamental analysis for EURUSD on March 3, 2023
Investors have changed their attitude towards the Fed's statements over the month. While previously they took speeches of regulator's officials as unimportant talks, now any commentaries of monetary authorities affect the dynamics of trading assets no worse than the release of important macro-statistics.
Christopher Waller suggests leaving a rate range of 5-5.5% but deciding on a monetary tightening after the labor market and inflation reports. That is also the view of Rafael Bostic, the head of the Federal Reserve Bank of Atlanta.
In other words, the regulator's future policy depends on external data. For now the urgent market sees the rate ceiling at 5.5%. But if the inputs change, it does not exclude its growth up to 6%. This will certainly support the dollar.
Actually, the European Central Bank is also setting its monetary policy course depending on the level of inflation, which set a record 5.6% in February. Investors believe the ECB will raise deposit rates to 4%, or 150 basis points above current levels. By comparison, Fed rates are only 75 bps away from their highs. In addition, there is an opinion in the market that the European regulator will need more time to normalize inflationary pressures than the Fed.
This already suggests that in the medium and long term the European currency is more interesting than the dollar. It is not by chance that the consensus forecast of 69 analysts at Reuters in 1, 3 and 6 months expects EURUSD at 1.07, 1.08 and 1.1 accordingly, and in a year at 1.12. True, it should be admitted that forecasts of specialists do not always come true.
We suppose that further fate of the major currency risk depends on the performance of the American economy. If the force of January statistics will be a one-time occurrence, the euro buyers will soon seize the initiative and return EUR/USD to growth. Otherwise the pair will continue to decline to 1.03. Until the release of the labor market and inflation reports, the asset is likely to remain in the 1.051-1.071 range. We will stick to the range trading strategy - buy at the bottom and sell from the upper border of the channel.