FOREX Fundamental analysis for EUR/USD on June 11, 2024
Act first, then evaluate. This is the reality of forex currency trading – analyze actions after, not before. As for the news, a few days later it is possible to assess more objectively the impressive US employment data for May and the sale of European assets against the background of news about the snap elections in France. Perhaps Emmanuel Macron's decision will be justified, and the slowdown in inflation in the United States will give EUR/USD buyers the opportunity to recover. But all this does not become clear immediately.
The euro bounced back from five-week lows as US inflation data and the Fed's rate forecast look serious enough to close some positions. Hedge funds became pure euro bulls for the first time since August and suffered losses due to their confidence.
Few people want to make hasty decisions now, wondering if American inflation will slow down. This will definitely affect the Fed's forecasts. If the growth rate of consumer prices decreases, officials are likely to be inclined to two acts of monetary expansion before the end of 2024. If inflation slows down, we will see only one rate cut. In this case, the chances of a rate cut in September will drop sharply, and the market will begin to doubt whether the Fed will ease monetary policy at all this year.
With a consistently strong economy and inflation, the best solution for the Fed is to do nothing at all. Judging by the rhetoric of FOMC officials, the Fed decided to take a break in the summer to get more data to make important decisions. Political tensions are also making the world's regulators more patient. Few people want to lower the stakes before the elections, so as not to be accused of supporting the current government.
In the UK, France and the USA, the political situation can change at any moment. The victory of Labour over the Conservatives is perceived as a boon for the pound, while the rise of eurosceptics to power in France causes concern among investors. If they form a government, their spending program could lead to conflict between Paris and Brussels. According to Pictet Wealth Management, such a scenario would provoke an economic catastrophe for France. It is not surprising that the volatility of currency pairs with the euro has increased sharply, and the risks of a reversal for EUR/USD have decreased, which indicates a "bearish" market sentiment.
RBC Capital Markets forecasts a decline in the main currency pair to 1.05 in the third quarter, and Union Bancaire Privee believes that the single currency will be under pressure in the next three weeks. Credit Agricole estimates that further widening of the French and German bond yield spreads will lead to the sale of EUR/USD.
However, to begin with, the main currency pair needs to pass a test in the form of data on American inflation and the Fed meeting. The acceleration of consumer price growth will be the catalyst for the fall of EUR/USD to 1.06. Their slowdown will allow the euro to return to the $1.08 mark. Let's wait and see soon.