Fundamental analysis of FOREX on June 30, 2022.
The Fed is acting much more decisively than the European Central Bank. While Christine Lagarde talks about the prospects for inflation, Jerome Powell tries on the Central Bank's policy to the new realities. While the ECB is thinking about the need to raise rates by 25 basis points, the Fed accepts the possibility of a recession, but intends to continue aggressively tightening monetary policy.
In other words, while the Federal Reserve is "ahead of the whole planet", the dollar will lead in forex currency trading, and EUR/USD will be at the mercy of "bears".
Judging by the speeches of the heads of Central Banks at the Portuguese summit, regulators heeded the calls of the Bank for International Settlements and plan to raise rates intensively. As Jerome Powell stated, he is more concerned about inflation problems than a possible recession of the American economy caused by a rate hike.
Christine Lagarde noted that Europe is in a completely different situation, since the war in Ukraine strongly affects the Eurozone economy. The growth of European inflation is mainly caused by the increase in the cost of energy, and here the ECB is practically powerless.
At the same time, Germany's inflation presented an unexpected surprise. Instead of the expected growth from 8.6% to 8.7%, it suddenly went down to 8.2%. The reasons are the reduction of fuel taxes and discounts on transport services for EU citizens. Whatever it was, but the reduction in inflation was influenced by the actions of the government, not the Central Bank.
Of course, inflation in Germany may return to strengthening at any moment, but this is unlikely to change the ECB's intentions to raise the rate by 25, not 50 basis points. According to the head of the Hungarian Central Bank, such an outcome of the meeting has almost been decided, no matter how some members of the Council would not like to start monetary restriction with a bigger step.
Against the background of the ECB, the Fed's "hawkish" policy looks much more aggressive, especially since now the market is actively discussing the likelihood of a rate hike in July by 100 basis points at once.
The aggressive tightening of the Fed's monetary policy has already affected the economy of the United States. According to the results of the first quarter, GDP sank by 1.6%, and in the second, according to experts, it will grow by no more than 0.1-0.3%%. But even in the Eurozone, taking into account the embargo of Russian energy carriers, the threat of recession is quite high, which means that the ECB may refuse to raise rates further. In this regard, EUR/USD sales on upward pullbacks with the nearest target of 1.037 look the most logical.