FOREX Fundamental analysis on August 11, 2022
Yesterday, forex currency trading finally revived. The EUR/USD bulls have come to believe that US inflation peaked in June and began to decline, so there is no point in the Fed continuing to aggressively tighten monetary policy. The bears, along with some FOMC representatives, believe that one report is clearly not enough to assess the effectiveness of the Fed's actions, so monetary restriction will continue.
In July, the consumer price index slowed from 9.1% to 8.5%, with a forecast of 8.7%. Core inflation remained at the June level of 5.9%
Despite the local decline in the indicator, it should be recognized that inflation in the United States remains at record highs and is still far from the 2% target. According to the head of the Federal Reserve Bank of San Francisco Mary Daly, it is too early to talk about a victory over price growth. The Fed has not finished the work it started and it is likely to raise the rate by 75 basis points in September.
Investors' opinions on the size of the September act of monetary restriction differ. The probability of an increase of 75 basis points in a few hours fell from 70% below 50%, which allowed the Nasdaq Composite to complete the longest decline and strengthen by 20% from the lows of June. The yield of treasuries collapsed, the dollar had to retreat.
I believe that the inflation report has cooled the particularly zealous "hawks" who are proposing to raise the rate in September by 1.00% at once, but did not affect the policy of the Federal Reserve. Moreover, according to the head of the Federal Reserve Bank of Chicago, Charles Evans, the Fed does not plan to refuse to raise rates in 2023. The head of the Federal Reserve Bank of Minneapolis, Neil Kashkari, expects that by the end of this year the rate will rise to 3.9%, and to 4.4% next year.
It seems that the reaction of EUR/ USD to the release turned out to be excessive, but allowed us to open sales from 1.0355, which we will increase when the support breaks 1.018. The reduction targets remain 1.01 and 1.00.