FOREX Fundamental analysis for EUR/USD
When a currency does not go in the expected direction, it is likely to go in the opposite direction. But will this be true for EURUSD? Maybe not this time! The reaction of the main currency pair to the US employment data did not meet expectations. With excellent data, the Bears were unable to maintain their advantage. The Fed's firm stance on lowering rates, even with steady economic growth, was to blame for this. But what if the Central Bank changes its rhetoric?
The growth of non-farm payrolls by 303 thousand in March, an upward revision of 22 thousand in January-February, as well as a decrease in unemployment from 3.9% to 3.8% seemed to be significant factors in support of the greenback. However, buyers of EUR/USD focused on reducing the growth rate of wages to 4.1%, the lowest since June 2021, on the growth of US stock indices and on forecasts by Bloomberg experts about an increase in consumer prices and core inflation in March by only 0.3%.
The S&P 500 went up amid expectations of a favorable impact of a strong economy on corporate profits. An increase in global risk appetite through the correlation of currencies and indices has put pressure on the US dollar. However, the main reason for the fluctuations in the EURUSD exchange rate was the change in the Fed's position.
If in 2022-2023 the Fed believed that rapid economic growth would make it difficult to combat high inflation, then in 2024 it is ready to loosen monetary policy even with a favorable GDP. This conclusion was made by investors, focusing on the speeches of Jerome Powell. However, the Fed is not just one person, even the most authoritative one. More and more FOMC members are in favor of a "hawkish" course. So, Michelle Bowman said that the Central Bank has not yet reached the point where it would be advisable to lower rates. The risks of a new round of inflation are still high. The president of the Federal Reserve Bank of Dallas, Laurie Logan, noted that it is too early to talk about monetary expansion.
Fed officials unanimously declare slowness, but the longer they are in standby mode, the greater the risks that the Fed will not eventually cut rates this year. The upcoming US presidential elections may also contribute to this. The central bank may refrain from easing monetary policy so that it is not accused of supporting the current government.
The market is increasingly moving away from the FOMC's March forecasts. The chances of a rate cut in June fell to 48%, and the probability of three acts of monetary expansion in 2024 decreased from 66% to 56%.
It is not particularly clear how the EURUSD can strengthen in such an environment. Perhaps investors have remembered the principle of "don't go against the Fed"? However, the final decision of the Central Bank will depend on the inflation data. Perhaps the rebound of the euro was caused by the closing of shorts before an important event. Is it worth opening positions on the eve of the release of important statistics? I don't think that's a good idea. We are watching 1.0845. The pivot level of the main currency pair passes here.
EUR/USD Technical analysis
Yesterday, EUR/USD tested the boundary of the short-term downward trend of 1.0863 - 1.0850. Sellers were able to hold the zone and did not let buyers go higher. We will consider selling the pair in the direction of the minimum of April 2.
If yesterday's high is updated on Friday at the news release and EUR/USD is fixed higher, then the trend direction will change to an upward one. In this scenario, starting on Monday, we will look for entry points to purchases with a target at the upper limit of the channel 1.1001 - 1.0976.