EUR/USD FOREX Fundamental analysis on October 31, 2022
Undoubtedly, the global central banks are primarily interested in the problems of their own country and to a lesser extent the influence of their activity on other countries. In today's turbulent times of forex trading the actions of regulators look like the actions of pests. For example, currency interventions of the Bank of Japan are not so much supporting the yen, as they are accelerating the yields of treasuries and slowing down the global economy. Or the ECB's rate hikes that displease Italy and France. After all, it is a clear step towards recession. But most of all, the Fed is being sabotaged because the tightening of the monetary policy of the U.S. regulator has the greatest impact on the global economy.
Indeed, what is bad for global GDP is good for the Fed. FactSet predicts that U.S. corporate profits will grow no more than 2.2% for the third quarter, posting the worst performance since the pandemic 2020. But, for the Fed, it's shrinking domestic demand that's slowing down inflation.
Investors, too, are starting to look for signals of a Fed rate reversal in the bad news. Despite the weak reporting, the Dow Jones index could strengthen 14%, the best gain since 1976. In this case, through the correlation of currencies and indices, risky assets including EUR/USD will get support.
Moreover, experts think that the inflated dollar rate may force the Fed to change its plans. 38% of the financiers questioned by Bloomberg think that the strong dollar will force the Fed to begin cutting rates earlier than it was expected. 18% expect the rate hike cycle to end earlier and at the wrong altitudes.
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The impact of financial market stress on Fed policy
The confrontation between the world markets and the Fed continues. The Fed has won the battle several times before. But, as rates rise, the rules of the game may change. It's one thing to start fighting inflation out of control, but it's another to see signals of a slowing economy amid falling consumer prices. In this regard, the November FOMC meeting is very important.
Most likely, the Fed will not deviate from the plan and will raise the rate by 75 basis points to 4%. However, investors are more interested in Jerome Powell's conference. Will the head of the regulator say something about a possible slowdown in monetary tightening? If so, it will be very unpleasant news for the dollar. For now the EUR/USD remains in the 0.988-1.008 range. According to Keltner's channel trading rules, we sell the pair from the upper boundary and buy from the bottom.