FOREX Fundamental Analysis for EUR/USD on July 17, 2023
The market is witnessing dollar sell-offs, the biggest for the last 8 months. The USD index shed 2.2% for the week, the worst among other forex currency indices.
However, whether the S&P 500 and EUR/USD have strengthened too much, because the data on the decline in inflation in the United States were mostly already taken into account by investors before the report was released, especially since other statistics showed that the United States economy is not experiencing the tightening of monetary policy of the Federal Reserve quite well.
Economists realize that it is premature to draw deep conclusions based on the inflation report alone. And the Fed leadership has repeatedly stated that the regulator's work is not over yet.
The US labor market, despite the June figures, is quite strong, and wage growth is outpacing inflation. This will offset the Fed's efforts, and according to Harvard University, US inflation will remain around 3.5% by the end of the year.
But investors are waiting for the end of the Fed's monetary restriction cycle, which explains the EUR/USD rally. At the same time, Wall Street Journal analysts believe that the regulator will keep high rates for a long period of time, at least until the first quarter of 2024.
Of course, the Fed will have to step up if inflation picks up again. With the current performance of US economic indicators, such a scenario is quite likely.
Market euphoria about the EUR/USD upswing may bring losses to traders. We believe that the decline of the pair below 1.1215 and 1.1200 will be a signal for fixing longs and will allow to open short-term sales. From the area of 1.1145-1.1175 we will again look for entry into long positions.