FOREX Fundamental analysis for EUR/USD on November 15, 2022
Buyers of the European currency are tired of the negativity and have stopped reacting to the bad news. Indeed, it is difficult to remain optimistic amid the war, energy crisis and decline in the economy. But, the belief in the best remains, and it is what helped EUR/USD to soar to three-month highs.
However, the fundamental clouds over the pair are still there. According to the Bloomberg forecast the U.S. economy will face recession in the second half of 2023, which will cause a GDP slowdown from 1.8% to 0.7%. In the Eurozone, performance is worse - (-0.1%). The European economy is saved from a deeper drawdown by an abnormally warm winter and the government's fiscal support. If something goes wrong, it might contract by 0.5%.
The COVID-19 pandemic made an adjustment in the labor market by raising the unemployment rate, which will help the Fed fight inflation. If the unemployment rate goes down, the Fed would have to raise the rate not to 5, but to 6%, which is a very different risk of recession.
However, the regulator is now targeting an unemployment rate of 4%, which would raise the rate to 4.6%. And although Jerome Powell said that the rate will be higher than previously thought, in fact things might turn out differently. Fed Vice-Chairman Lael Brainard thinks that lowering the rate of monetary easing will allow the central bank to analyze in detail the impact of tight monetary policy on the U.S. economy.
The EUR/USD outlook largely depends on the pace of Fed and ECB rate hikes. In turn, central bank decisions are influenced by external data. The market has been under the burden of negative news for a long time, so a little bit of optimistic news allowed the risky assets to push back from the lows. The euro rally might continue in case of a stronger appetite for risk. However, it should be remembered that the Fed's work is not over yet and the US economy remains the strongest in the world, while the delicate balance in Europe might break down at any moment.
Read more: The European Central Bank (ECB)
We believe that in the short term, in the forex day strategy format, you can sell EUR/USD on a breakout of support at 1.027. In case the price fixes above 1.036, we will continue buying.