FOREX Fundamental Analysis for EUR/USD on August 4, 2023
For a long time, the main question in forex currency trading was one - to what level will the Federal Reserve raise the interest rate? Now investors are interested in how long the regulator will keep the cost of borrowing at maximum levels? Most likely, the Fed will make a decision on the prospects of monetary policy, focusing on the labor market report, which will be released today at 12:30 GMT.
DWS believes that a good report will allow the Fed to continue raising rates even to 6.0%, as the regulator's representatives have repeatedly stated that the Bank's work is not over yet. But I don't think that Jerome Powell's team will go for further tightening of financial conditions with stable employment growth. Most likely, under this scenario, the regulator will keep the high rate at least until March 2024. At any rate, there is a 50% chance of a dovish reversal this month.
This week's ADP labor market report shows that employment in the U.S. is in good shape. The unemployment rate is holding at fifty-year lows. That is, those who have been looking for work have been able to find it. Citizens receive wages, spend them and fuel the economy.
If Non-farm Payrolls turn out to be worse than forecasts, then investors will doubt the exclusivity of the American economy, which will be a negative factor for the dollar. Of course, the recession may be short and shallow, but no one is immune to it. Such a scenario is confirmed by the recently published indices of business activity in the manufacturing and service sectors of the United States. The indicators are rather weak, which signals a slowdown in economic growth.
I believe that the dollar looks more attractive than the European currency. Strong Non-farm Payrolls with +200K jobs will send the pair to our targets at 1.086 and 1.080. A weak report will allow euro buyers to go on a counter-offensive, but in this case our forex trading strategy suggests selling on the upside.