FOREX Fundamental analysis for EURUSD on June 5, 2023
The US labor market report once again confirmed the steady recovery of the American economy. Contrary to all expectations the employment growth amounted to 339K and the average wage growth slowed down to 4.3%. Even a cursory comparison with the Eurozone explains the sharp decline of EURUSD on Friday.
In such a situation the Fed does not necessarily need to raise the rate in June, but the FOMC members are still divided on the issue. Of course, Friday's NFP will be a boon for the hawks who think a continuation of monetary tightening is necessary. Indeed, the U.S. economy added 1.5 million jobs in 2023 with an average monthly job gain of 314,000. This is well above the pre-pandemic 187,000 jobs. So the tightening of financial conditions by the regulator is not affecting the economic recovery as much as analysts had anticipated.
Non-farm Payrolls was good news for both the dollar and the stock indices.
At the same time, the doves will be nodding to an increase in unemployment from 3.4% to 3.7% and a slowdown in average wage growth.
Derivatives are betting on a pause. The likelihood of a monetary restriction in June has fallen, but the odds of a July rate hike have risen from 54% to 68%.
The Fed raised the cost of borrowing 10 times for a total of 500 points and brought the rate to 5.25%. It no longer makes sense for the regulator to move brashly forward now. Most likely, further movement will be varied, so investors do not rule out easing of the monetary policy in December-January.
Certainly, the Fed will base its decisions on the inflation figure. It is unlikely that consumer prices will collapse as sharply as they have risen, but it is already clear that the Central Bank is up to the task.
The labor market report showed that the EUR/USD downward movement remains in force. However, in the medium term we still expect the pair to consolidate. Our forex trading strategies consider both short-term selling towards 1.0655-1.0670 and 1.0670 and medium-term buying.