FOREX Fundamental analysis on September 7, 2023
Talk of a recession has been replaced by concern about the acceleration of the US economy. The published index of business activity in the service sector, which demonstrated a six-month maximum coupled with a reduction in the trade deficit, increases the chances of GDP growth in the third quarter above analysts' forecasts. If the indicator exceeds 3%, then the topic of the economic downturn can be forgotten, but the risks of a new round of inflation with the appropriate measures of the Fed can be pulled out of the storerooms.
Can EUR/USD return to strengthening against this background?
Forex hedging funds, which are actively selling the dollar, did not expect such a resilience of the American economy to the tightening of the Fed's financial conditions. You can believe or not believe that the Fed will conduct another act of monetary restriction this year, but the fact that rates will remain at high values for a long time is already an axiom.
But, as you know, there is no trend without correction, and the dollar index has been strengthening for a very long time with almost no rollbacks. This is the best DXY rally since 2005, but, according to ING, the asset is clearly overbought. Analysts believe that any weak release from the US can cause a rapid decline in the dollar with a simultaneous recovery of EUR/USD.
However, it is not only the economic successes of the United States that are pushing the pair down. Investors were disappointed by China, which forced the Eurozone to balance between stagflation and recession. And even if things are not as smooth in the United States as we would like, things are much worse in the Eurozone, which is unlikely to increase demand for the single currency.
The euro is trying to grow with any more or less optimistic driver, but more often it resembles a drowning man's attempt to grab at straws, especially since there is no consensus in the ECB Council on the need for further rate increases.
According to John Murphy's technical analysis, a pullback of EUR/USD is quite possible. But it is more likely to be caused by the fixation of short positions upon reaching the target mark by traders-sellers. To reverse the main currency risk, either the easing of the Fed's monetary policy, or the economic take-off of China or the Eurozone will be required. And it is better that all these factors are worked out at the same time.
We prefer sales, but we will fix short positions and open short-term longs when the pair breaks above the resistance of 1.0745.