Fundamental analysis of FOREX on April 27, 2022.
The growing demand for defensive assets and American exceptionalism continue to increase the dollar's position in forex currency trading. The slowdown of the Chinese and European economies, the war in Ukraine, anti-Russian sanctions increase geopolitical uncertainty and push EUR/USD to the lows of 2017.
The higher the cost of energy, the greater the likelihood of the European economy sliding into recession. Poland and Bulgaria refused to pay for Russian gas in rubles, thereby breaking the contract for the supply of fuel. It is possible that these countries will be followed by others. This will lead to an even greater acceleration of inflation and an expansion of the difference in the economic growth rates of the EU and the US economies, where, judging by the data of orders for durable goods, enterprises are increasing the volume of production of machinery and equipment.
And although Xi Jinping demands that the Chinese government overtake the United States in terms of economic growth, in 2022 this is clearly an impossible task.
But the divergence of economic growth is not the only driver of the strengthening of the greenback. Rates in the US are higher than in the Eurozone, and this allows the dollar to be used as the main currency for carry trade. Deutsche Bank believes that in order to defeat inflation, the Fed needs to raise the rate to 5-6%%. The ECB, of course, will not be able to take such a step, although for the American economy, an increase in rates could easily turn into a recession. The probability of a recession over the next 12 months, according to Bloomberg forecasts, has increased from 20% to 27.5%.
And, of course, the fall of American stock indices adds to the rate of decline of EUR/USD. The S&P 500 falls into stocks and drags risky assets, including the euro, through the correlation of currencies and indices.
The fundamental background allowed EUR/USD to meet the target at 1.065. If sellers break through the support at 1.061, then the next target of the decline is 1.05. However, I do not exclude that on the eve of the release of important news from the US and the Eurozone, the pair will consolidate at current levels for some time