Forex. EUR/USD: dollar has lost all its trump cards

The trading idea for the dollar index (DXY) dated June 26, 2024The dollar index (DXY) is growing for the second day in a row, and at the moment it reached the level of 105.50, maintaining an upward potential with the intention of overcoming the maximum of the beginning of May of 105.55. Support from fundamental factors contributes to the strengthening of the American currency.Investors still doubt the willingness of the US Federal Reserve (Fed) to lower its key interest rate several times this year. Although financial markets assume that monetary policy easing may begin in September, the Fed's further actions will depend on the dynamics of inflation and a number of other economic and political factors.Many representatives of the regulator insist on maintaining current rates until inflation reaches the target level of 2%. At a meeting in New York on Tuesday, Fed spokeswoman Michelle Bowman stressed that lowering rates is now impractical, and added that it is even possible to raise them if disinflation stalls. Mary Daly, President of the Federal Reserve Bank of San Francisco, noted the need to continue fighting inflation, while avoiding excessive pressure on the labor market and rising unemployment. The head of the Federal Reserve Bank of Chicago, Ostan Goolsby, said that it is necessary to wait for new evidence of a decrease in inflationary pressure before adjusting monetary policy.This week, on Friday, markets are waiting for the release of data on the basic price index of personal consumption expenditures (PCE) in the United States for May. The PCE index is one of the basic criteria for determining the dynamics of inflation for the Fed, and may clarify the prospects for the Fed's monetary policy. Data on gross domestic product, durable goods orders and initial applications for unemployment benefits in the United States are also expected on Thursday. If these figures meet expectations, the DXY may test resistance at 106.00 even before the publication of data on the personal consumption expenditure index on Friday.Taking into account fundamental factors and based on indicator readings and graphical patterns, we consider placing an order on DXY:Buy Stop 105.60Take-Profit 107.00Stop-Loss 105.00

FOREX Fundamental analysis of EUR/USD on June 26, 2024The slowdown in the American economy is clearly not enough for the collapse of the US dollar. The economy does not have a constant of growth. At other times it strengthens, at other times it slips. It would seem that hardly anyone today would dare to say that the United States economy is in for a deep recession. However, discussions on this topic are already underway. Of course, the Fed should clearly indicate its position and confirm or deny the intention to lower rates. Instead, after the statements of FOMC officials, it seems that easing the exchange rate is not a priority for the regulator. Moreover, representatives of the Central Bank even hint at a possible tightening of monetary policy. Of course, against this background, the EURUSD will decline.Michelle Bowman argues that migration is higher than ever, large-scale fiscal incentives and softening financial conditions increase the risk of a new wave of inflation. If it is resumed or the disinflation process is stopped, Ms. Bowman is ready to support an increase in the federal funds rate. Lisa Cook, in turn, believes that easing the Fed's monetary policy will be appropriate in the future, but does not indicate when exactly this future will come.The market is starting to assume that by keeping rates at 5.5% and not giving signals about the timing of easing amid a slowdown in the economy and inflation, the Fed is demonstrating readiness for a hard landing. If a recession starts in the United States, the rate cut could happen dramatically and significantly. Interestingly, betting options predict a drop of 300 basis points in 9 months, which is significantly higher than the expectations of the FOMC and the market.If a recession in the American economy occurs in 2025, it will seriously shake the dollar's position in forex currency trading. In the meantime, the greenback is winning thanks to the neutral and sometimes hawkish rhetoric of the Fed and political risks in Europe. Investors fear that the unexpected victory of the New Popular Front in France will be more devastating than the success of the leading National Rally.Leftist forces in France plan to raise budget spending by €150 billion by 2027 in order to fulfill promises to reduce the retirement age from 64 to 60 years and raise salaries for civil servants by 10%. They are also going to raise taxes for the rich and corporations, without planning to reduce the deficit in accordance with EU requirements.Political uncertainty in France worries investors, and even the rally of American stock indexes through currency correlation does not help the euro. And when the Nasdaq and the Dow Jones index go in opposite directions, the situation for the single currency becomes critical.In such circumstances, can stock indexes be indicators of the state of the US economy and influence the growth of global risk appetite? Doubtful. Unsurprisingly, the movements of the S&P 500 often do not coincide with the EURUSD. A drop of the pair below 1.07 will strengthen the short positions opened at 1.0735.Technical analysis of EUR/USDEUR/USD is falling, developing a short-term downtrend. The sellers' immediate target is the 1.0670 level. If this goal is fulfilled, then sellers will go to test the Target zone 1.0664 - 1.0638. If this area does not withstand the onslaught of the "bears" and is broken down, then the next target will be the Golden Zone 1.0580 - 1.0571.An alternative scenario is possible if EUR/USD strengthens above the 1.0760 level. In this case, the correction may continue to the border of the short-term downtrend 1.0806 - 1.0793. When this zone is reached, it will generate sales.

FOREX Fundamental analysis for EUR/USD on June 25, 2024The market is tired of selling euros, tired of France with its eurosceptics. I'm tired of being afraid of China's retaliatory measures against EU tariffs on electric vehicle imports. Investors are ready to get rid of the US dollar, as they expect the Fed's monetary policy easing cycle to begin soon. This is how the EURUSD rebound from two-month lows can be explained. But will the buyers have enough strength to develop an offensive?China has offered Germany to reduce import duties on cars equipped with large-volume engines from 15% to zero in exchange for the EU canceling new tariffs on electric vehicles from China. Prior to that, there were rumors of a new trade war in the market, since an increase in European duties to 48% could cause a rise in Chinese duties to 25%. The German car industry would be under attack. But the worst was avoided, and EURUSD took advantage of this situation.The conciliatory rhetoric of the French National Rally party, which is leading in the polls, also supported the euro. The party calls for calm and criticizes Finance Minister Bruno Le Maire, as well as President Emmanuel Macron for stirring up passions about the crisis and the civil war. The national rally intends to follow the trajectory of deficit reduction so that France meets the criteria of the EU Financial Stability Pact.This position reassures investors who feared that the coming to power of Marine Le Pen would increase the budget deficit and public debt, which currently amount to 5.5% and 111% of GDP. This could increase the yield spread of French and German bonds to 100 bps. It is clear that the higher the political risks, the more likely the EURUSD will fall.But if the euro sheds fears about trade wars and the crisis in France, the US dollar has remembered its weaknesses. The president of the Federal Reserve Bank of San Francisco, Mary Daly, noted that the situation in the labor market is deteriorating. Unemployment is growing slowly, but it may soon jump sharply. High inflation is not the only problem for the Fed, and lowering the federal funds rate could mitigate the effects of a cooling labor market. German colleague Isabelle Schnabel noted that the policy differences between the ECB and the Fed are insignificant and temporary.The black streak for the euro may end. But for the EURUSD to grow steadily, signals of further cooling of the US economy are needed. Nevertheless, we do not change our forex trading strategy and we will consider the pair's return below 1.0735 as a signal for sales, since the old risks may return at any moment.Technical analysis for EUR/USDEURUSD remains in a short-term downtrend. After an unsuccessful resistance test (A) of 1.0760 - 1.0751, which ended with a rebound, the pair went down to the sellers' first target of 1.0714. The second target is the minimum of June 14th. In case of an update of the extremum, EURUSD will go to test the target zone in the range of 1.0664 - 1.0638.At the same time, we note that yesterday closed with an increase. We decided to close the rest of the sales at breakeven, as we expect buyers to try to break through the resistance area (A) up. If successful, the pair may reach the resistance area (B) 1.0806 - 1.0793 within the correction. We do not think that the bulls will be able to push the quote higher, so we will form short positions from zone B.

FOREX Fundamental analysis for EUR/USD on June 24, 2024Politics, through financial markets, certainly affects the economy. Thus, the increase in the cost of borrowing increases the burden on servicing the national debt and slows down GDP growth. This is also reflected in business activity, as expectations of an alarming outlook negatively affect purchasing managers' indices. The situation in France, where political instability has widened the yield spreads of French and German bonds and lowered the European PMI, clearly demonstrates the reasons for the fall of the EURUSD.Until June, the pair showed steady growth against the backdrop of a slowdown in the US economy, while Europe showed signs of recovery. The gap in GDP growth between the United States and Europe was narrowing, American exceptionalism was becoming a thing of the past, and investors began to focus on synchronizing the global economy. However, in the summer, forex currency trading changed its positioning againAlthough the US economy continued to cool, as evidenced by the decline in the Citigroup economic surprise index to a low of mid-2022, the snap elections in France, the US trade conflicts with the EU and China, as well as the slowdown in the Eurozone economy turned the EURUSD down.In France, the National Rally is gaining momentum, which, according to polls, is supported by 36% of voters, while the New Popular Front and the Revival of Emmanuel Macron receive 27% and 20%, respectively. If the right gets a majority in parliament, this could lead to a confrontation with the EU, although the situation is likely to develop according to the Italian scenario with compromises.If Marine Le Pen's party does not achieve a convincing victory, a minority government will be formed, which will calm the markets, but slow down the French economy. In any case, there are no favorable scenarios for EURUSD, and the pair will remain under pressure before the first round of elections on June 30.The decline in economic activity in the United States and the rally of American stock indexes, due to artificial intelligence technologies, mitigated the fall of the EURUSD. However, with the acceleration of business activity in the United States, the pair fell below 1.07. Until the Fed starts talking about cutting rates, the difference in yields between U.S. Treasury bonds and their German counterparts will support the dollar.Normalization of the political situation in France and a further slowdown in the US economy are necessary to stabilize the EURUSD. But new problems for the euro are already on the horizon. An increase in EU import duties on Chinese electric vehicles may trigger retaliatory measures by Beijing, and the upcoming US presidential election will increase the risks of anti-globalist policies. The inability of the EURUSD to return above 1.0715 indicates the weakness of the bulls and gives a signal to build up short positions.Technical analysis for EUR/USDEUR/USD is trading in a short-term downtrend. Last week, buyers tested the resistance area (A) 1.0760 - 1.0751, but sellers were able to hold this milestone. As a result, the pair declined and reached the first target of the bears - 1.0714. The next target is the minimum of June 14. We are holding previously opened short positions and will increase them on upward pullbacks and correctionsHowever, if the situation changes dramatically, the pair returns to growth and breaks through the resistance (A) upwards, then we believe that the upward correction will continue to the resistance area (B) 1.0806 - 1.0793. The trend line also runs here. From this area, we will also consider sales.

FOREX Fundamental analysis for EUR/USD on June 20, 2024The parity of the euro and the dollar is not expected. Eurosceptics do not plan to develop a Frexit plan that could bring down the exchange rate of the single currency and, as a result, the EUR/USD pair. Marine Le Pen confirmed that her National Unification party is ready to cooperate with Emmanuel Macron and complies with current legislation. Is it possible that after coming to power, the right will abandon their promises to reduce taxes and expand budget spending on social needs? If so, then the political crisis in France will end before it has even begun.After the victory of the party For Freedom in the elections in the Netherlands, its leader Geert Wilders abandoned the idea of holding a referendum on leaving the EU. Georgia Meloni, who criticized the EU, turned into a team player after being appointed Prime Minister of Italy and cooperates with Brussels. Everyone understands that the political popularity of the euro outweighs its economic disadvantages. And it is unlikely that citizens of the European Union countries will want to change the euro to a depreciating local currency.There is practically no chance of the EU breaking up. The main concerns of investors were related to the contradictions between the policy of the "National Association" and the European Union. Brussels will insist on compliance with the financial stability pact, which requires countries with debt above 60% of GDP to reduce the deficit to 3%. France, with its 111% debt, has a negative budget balance of 5.5%. Fiscal incentives, so widely promised by the right, can further increase it.There is also no point in panicking about the growth of the yield differential of French and German bonds to the maximum since 2012. The main reason for the differential is the reduction in German debt rates based on expectations of a weakening of the ECB's monetary policy. French debt rates remain stable, and buyers are on them.It is possible that the European Central Bank (ECB) will intervene in the situation, although it is unlikely to rescue Paris directly, preferring to purchase bonds of those Eurozone countries that are being sold off after the French ones. The fact that the ECB does not consider the current fluctuations in the European bond market to be critical indicates that the situation is not as dire as it seems.We can say that politics will not drown the euro. However, this does not mean that EUR/USD quotes cannot fall from current values. According to Nordea, the Fed will keep the rate at 5.5% until the last and will reduce it only in December. On the contrary, the ECB will take two more steps to ease monetary policy in 2024, since one reduction in the deposit rate from 4% to 3.75% is not enough to support the weak Eurozone economy.If we add to this the possible response of China in the trade war with the EU and the risks of Donald Trump's return to power with his protectionist policies, it becomes clear that EUR/USD is unlikely to be able to count on rapid growth. However, it is still possible to profit from forex trading on the news. The positive is suitable for purchases from the 1.0755 level and negative factors for sales from the 1.0725 level.

FOREX Fundamental analysis for USDCHF on June 18, 2024Investors are in the dark: will the Swiss National Bank (SNB) cut the key rate at the meeting on June 20 or leave it at 1.5%? After the start of the monetary policy easing cycle in March, the Swiss franc, which was the best G10 currency by the end of 2023, turned into a clear outsider relative to other forex currency indices. However, uncertainty about the SNB's next steps, rising political risks in Europe, slowing inflation in the United States and increased volatility of the franc suggest a possible end to the upward trend in USDCHF.The chances of a reduction in the key rate, according to derivatives estimates, are now regarded as fifty-fifty. In early April, they peaked at 97.7%, but fell sharply to 33.6% after the "hawkish" statements by the head of the SNB, Thomas Jordan. Jordan noted that the weakness of the franc is the main driver of inflation growth, and the SNB will fight this with currency interventions. Investors have found confirmation of the words of the head of the regulator. HSBC claims that, according to data on Swiss foreign exchange reserves, the National Bank either switched to buying the franc or significantly reduced its sales.As a result, the franc has strengthened again and is leading among the G10 currencies over the past 30 days. The growth of political risks in Europe, expressed in the widening of the yield difference between French and German bonds, also supports the franc as a protective asset.The market doubts that the SNB will continue easing monetary policy in June. This assumption is supported by a stronger-than-expected economy and inflation, which settled at 1.4% in May, in line with SNB forecasts for the second quarter. If the CPI turned out to be lower, it would be safe to talk about a further reduction in the key rate.The main arguments in favor of continuing to ease the SNB's policy are the franc, which has strengthened compared to the previous meeting of the Central Bank, and the overly emotional reaction of investors to Thomas Jordan's words about currency interventions. The head of the Central Bank could speak hypothetically, and it is unlikely that he is now interested in interfering in Forex currency trading. Supporters of this version were surprised by the market reaction to Jordan's statements.According to Bloomberg, the SNB will prefer to wait and see if there are any new surprises in the dynamics of inflation. If not, it will be possible to resume the cycle of monetary policy easing. UBS adheres to a similar position and has completely revised its forecast for a key rate cut in June.It can be said that the market remains in the dark about the actions of the SNB. If another step is taken along the path of monetary expansion, this may lead to an increase in USDCHF quotes to the level of 0.9, from where it will be possible to sell the pair. Otherwise, with the rate at 1.5%, we get the basis for the formation of short positions with target marks of 0.88 and 0.87.

FOREX Fundamental analysis for EUR/USD on June 14, 2024The Federal Reserve System (Fed) refuses to celebrate the victory over inflation. The risks of political instability in France and the deterioration of the country's financial system also negatively affect the EURUSD rate. Despite the rally in stock indexes, lower Treasury yields and slowing inflation in the United States, the regional currency remains under pressure. This is reminiscent of the old principle of the market – not to go against the Fed.The Fed's position is clear. In the 70s of the last century, the premature celebration of the victory over inflation led to a double recession, and no one wants to repeat this mistake. It is no coincidence that Jerome Powell talks everywhere about the conservatism of the Federal Reserve.At the same time, the recent FOMC forecasts already look outdated against the background of an almost unchanged base CPI and a reduction in PPI in May. Nomura estimates that the personal consumption expenditure index (PCE) will fall to 0.113% on a monthly basis, which implies a drop in PCE below the target level of 2% per annum. Three- and six-month consumer price metrics confirm the development of disinflation.Potential implications for the U.S. economyKeeping the federal funds rate at 5.5% may have a negative impact on both the economy and US stock indices, and through currency correlation on risky assets. For stock markets, bad news from macroeconomic indicators becomes good, but this trend cannot continue indefinitely. The correction of the S&P 500 can cause an increase in demand for the dollar as a protective toolPolitical instability in EuropePolitical instability in Europe is exacerbating the EURUSD situation. France is not Greece, its finances are in better condition than those of the troubled Eurozone countries, but the situation is getting worse, as evidenced by the downgrade of the S&P Global credit rating. The reluctance of the French to tighten their belts and the possible rise to power of eurosceptics may worsen the situation.Forecasts and trading strategyRising government spending, budget deficits and public debt in France could lead to conflict with the European Union, French bond sales and rising yields, which would hit Europe's largest banking system. Paris should take into account the lessons of London, where in 2022 the intention of the Liz Truss government to reduce taxes without adequate financing led to the collapse of bonds and the pound. A similar scenario may develop for EURUSD, despite the positive signals from the United States.If the market is not moving in the expected direction, it is likely to head in the opposite direction – a well-known postulate of forex currency trading. The rise of the EURUSD against the background of a slowdown in the American CPI resembles a "dead cat jump". We keep short positions open in the area of 1.0835-1.085 and increase them on upward pullbacks. The targets remain at 1.06 and 1.05 levels.

FOREX Fundamental analysis for EUR/USD on June 13, 2024The Federal Reserve System (Fed) in its updated forecasts points to one reduction in the federal funds rate in 2024, urging "trust, but check." The market, responding to the same principle, continues to believe in two acts of monetary expansion after the release of the May inflation report in the United States. In an environment where monetary policy depends on data, statistics become the main factor of influence. However, this time the market reacted unexpectedly, causing fluctuations in the EURUSD rate.Reaction to inflation dataThe absence of an increase in core inflation with an increase in consumer prices by 0.16% (mom) has energized the bulls. The probability of a federal funds rate cut in September jumped to 80%, and the chances of two acts of monetary expansion in 2024 jumped to 69%. As a result, the yield on U.S. Treasury bonds fell sharply, dragging the dollar with it.Jerome Powell's comments and updated FOMC forecastsAt yesterday's press conference, Jerome Powell noted that the Fed has made some progress in combating inflation and called the May report a step in the right direction, but stressed the need to generate further confirmation signals. Despite this, the markets reacted quite violently to the updated FOMC rate forecast.Four FOMC members do not expect monetary policy easing in 2024. Seven members supported one act of monetary expansion, and eight supported two. In the spring, it was about two and five members, respectively. Previously, ten members of the Committee had seen at least three cuts in the federal funds rate. Now their views have changed, which allowed the EURUSD bears to partially recover from the blows inflicted by the inflation statistics for May.Market expectations and the Fed's cautionAlthough the chances of a rate cut in September fell to 62%, derivatives still point to a 62% probability of two acts of monetary expansion in 2024. Investors believe that the Fed's estimates are too conservative and that the Fed may be overly cautious.Unlike other world central banks, which have already lowered rates or expressed confidence in achieving inflation goals, the Fed is in no hurry to ease monetary policy. This is due to strong US GDP growth, which is holding back the Fed's change of course. The US financial system is less dependent on bank lending than in the past, and many homeowners are protected from aggressive monetary restriction in 2022-2023 due to fixed mortgage rates.Historical lessons and current strategyNevertheless, the Fed must be prudent and careful to avoid the mistakes of the 70s of the last century, when the premature declaration of victory over inflation led to a double recession. This caution helped to avoid a catastrophic fall in the dollar. After the slowdown in CPI growth and the FOMC forecast for one rate cut, our forex trading strategy presupposes the sale of EURUSD on strengthening. Those who took advantage of this advice were able to open short positions in the area of 1.0835-1.085. We continue to hold the shorts.EUR/USD Technical analysisAfter the Fed's two-day interest rate meeting, the US dollar weakened against most world currencies. This allowed EUR/USD to strengthen towards the resistance area (B) 1.0858 - 1.0845.But here the pair met resistance from sellers and failed to break above the key level.. This suggests that today the downward short-term trend remains in force. We will consider selling the pair on an upward correction with the nearest target at 1.0788. The second target will be at least on June 11.To change the trend and switch to buying EUR/USD, it is necessary to break through the 1.0858 level and consolidate higher. In this case, the direction of the short-term trend will change to an upward one with a target in the area of 1.0996 - 1.0971.