FOREX Fundamental analysis for EUR/USD on November 23, 2022
Everything comes to an end sometime, even if it is a bullish trend for the U.S. dollar. The greenback is trying to hang on to old drivers, but they are working worse and worse. The divergence of the Fed and ECB monetary policy rates as well as the superiority of the United States economy has long been embedded in quotes, and traders have had little reaction to them. Optimistic news from the Old World is another matter.
For example, buyers of the single currency were encouraged by the Eurozone consumer sentiment index, which rose to a five-month high. The index was growing even when the European economy was on the verge of recession. Analysts think the indexes of business activity in the Eurozone and the whole Euro bloc, the release of which is expected today, will not scare the "bulls" EUR/USD.
Of course Eurozone is helped by the warm winter but anyway the downside risks in the Old World are not as big as it was seen in the beginning of autumn. And the geyser of optimism in the United States is noticeably depleted.
It should be noted that American exceptionalism was well fueled by excess savings, which by mid-2021 amounted to $2.3 trillion. This "stash" was formed by a natural decline in demand and fiscal stimulus during the COVID-19 pandemic. According to the Fed, by mid-2022 this amount had fallen to $1.7 trillion, with the savings rate collapsing from 33% to 3.1%.
The faster the savings rate dries up, the sooner the Fed will reverse its hawkish course. The ECB, on the contrary, is determined to fight inflation and may raise its rate by 75 basis points in December, especially since the OECD has long suggested the European Central Bank to raise borrowing costs to 4.0-4.25%, which is much higher than experts' expectations. For example, BNP Paribas had forecast a maximum rate of 3%. At the same time, the OECD believes that the Fed is sufficient to raise the rate to 5.25% in order for inflation to return to the 2% target.
Read more: The European Central Bank (ECB)
The ECB may catch up with the Fed in the pace of its monetary tightening, which will make the EUR/USD trend change. This changes our forex trading method somewhat. We will short sell the pair and form medium-term buys on a break of resistance at 1.033 and 1.040.