FOREX Fundamental analysis for EUR/USD on April 4, 2024
When Jerome Powell starts talking, the others fall silent. The Fed Chairman, commenting that the overall picture of inflation has not changed and it is still striving for the 2% target, despite the difficulties of the path, as well as that the strength of the US economy will not violate the Central Bank's intentions to lower rates, pushed EURUSD to rebound. The massive fixing of speculative longs for the US dollar, which reached a maximum in December 2022, allowed the main currency pair to return above 1.08.
The Fed is not going to abandon plans to cut rates in 2024. And although the management of the regulator understands that there will be obstacles in the way of inflation, but this will not change the plans of the Central Bank. The acceleration of the CPI and PCE indices in January-February did not affect the Fed's positioning. Moreover, today it is clear that the US economy is beginning to show signs of slowing down.
When even weak sectors of the American economy give recovery signals, the US dollar strengthens. This happened with ISM's business activity in the manufacturing sector, which exceeded the key 50-point mark for the first time in 16 months. However, a serious slowdown to 51.4 in March in the index of business activity in the service sector, a strong sector of the US economy, had the opposite effect. The process of fixing speculative longs for the US dollar accelerated, which brought the EURUSD pair to 1.0845. Nevertheless, the dollar index still looks confident among other forex currency indices.
It seems to me that Jerome Powell's words that the strength of the US economy will not prevent the Fed's monetary expansion finally convinced investors to cut rates in June. And also on the scale of monetary policy easing, announced in the FOMC's March forecasts. For the past week, the probability of these events has remained virtually unchanged.
Another thing is that derivatives expect higher rates in the long run than the Fed forecasts. Forecasts say 3.6% in 2027, compared with 2.6% in the latest FOMC estimate. This suggests that the strength of the American economy will allow it to withstand high borrowing costs for the long term. Therefore, if the US dollar weakens, it will not be too much.
Reuters experts expect EURUSD to rise to 1.09 and 1.1 levels by the end of June and September, respectively. This means that the euro will not be able to fully compensate for losses either at the beginning of the year, or in three or six months.
We continue to believe that the rebound of the main currency pair was the result of traders fixing short positions in front of important statistics on the American labor market, as well as against the background of Jerome Powell's speech and published data on PMI in the services sector, which accelerated this process. However, final conclusions can be drawn only after the release of Non-farm Payrolls employment data. Until EURUSD can stay above 1.0845, we will focus on sales.
EUR/USD Technical Analysis
On Thursday, EUR/USD approached the border of the short-term "bearish" trend of 1.0863 - 1.0850. Until this area is broken up, it makes sense to consider selling from it with a goal at the minimum level on April 2. To enter short positions, you should wait for the appropriate signal. The intermediate target for sellers, where it will be possible to fix part of the profit, will be the level of 50% of the fibo grid, thrown over the correction of price growth on April 2-4.
If the resistance is still broken today, and the American trading session closes above this benchmark, then the short-term trend will change to an upward one. In this case, starting from Friday, we will look for an entry into purchases with a target at the upper limit of the channel 1.1001 - 1.0976.