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Forex. EUR/USD: investors are trying to outrun the Fed

EUR/USD, currency, Forex. EUR/USD: investors are trying to outrun the Fed

FOREX Fundamental analysis on October 6, 2022

Investors constantly criticize the Fed. At the beginning of 2022 for slowness in toughening of the monetary policy, now for excessive aggressiveness. The UN even suggests stopping the process of raising rates, as it may lead to a global recession. Market participants keep hoping for a "dovish" U-turn by the Fed, which actually strengthens EUR/USD.

FOMC members one after another say that monetary tightening should be continued. Nevertheless, derivatives on the futures market are reducing the probability of a November rate hike by 75 basis points day by day.

Atlanta Fed Governor Rafael Bostic warns that the Fed's change in outlook won't happen as quickly as the markets see it. His San Francisco colleague Mary Daley thinks rate easing won't even begin next year.

But, forex trading on the news shows that traders use every weak economic release from the U.S. to buy risky assets. Yesterday's ADP labor market report and ISM service sector activity index were the drivers for declines in equities and EUR/USD.

The dollar continues to be in demand which together with comments from FOMC members makes it impossible to change the trend. Reuters predicts that within 6 months euro will be cheaper than dollar and only then will start to grow in the direction of 1.03.

In order to change the direction of the global trend, it is necessary that the global economy develops better than the U.S. economy. This is not the case. China recorded a new outbreak of COVID-19 with all its consequences, the energy crisis is raging in Europe. Global GDP for 2023 has been cut from 3.3% to 2.3% and global trade growth has been adjusted from 3.3% to 1.0%.

The EUR/USD downtrend continues. The desire to get ahead of the Fed will bring losses for traders buying risky assets. But, much, of course, will depend on tomorrow's U.S. labor market report. The pair remains in the range of 0.985-1.000.

 

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Forex analysis EURUSD: the dollar is stumbling more and more
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Mar 29, 2023 Read
Forex pair USD/CAD: Canada's economy is close to recession
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Mar 28, 2023 Read
Forex analysis and forecast for USD/CHF for today, March 28
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Mar 28, 2023 Read
EUR/USD: the dollar may still have a surprise
EUR/USD, currency, EUR/USD: the dollar may still have a surprise FOREX Fundamental analysis for EUR/USD on March 28The risks of the banking crisis force the Fed to backtrack and develop the idea of a "dovish" reversal. This lights a green light for the European currency and other risky assets.Of course, the threat of bankruptcy is forcing banks to tighten lending, which reduces lending and negatively affects economic performance. This increases recessionary risks. The difficulty is that these processes are going on all over the world. Not surprisingly, after the collapse of U.S. banks, the Credit Suisse story surfaced and rumors about the unreliability of Deutsche Bank emerged.The monetary authorities have to choose between fighting inflation and stabilizing the banking system. It is no coincidence that expectations of a peak rate from the Fed have fallen from 5.75% to 5.0% in a month. CME derivatives with a 62% probability predict a pause in monetary tightening at the May FOMC meeting and a rate cut of 100 basis points at once by the end of 2023.Expected Federal Funds Rate Trends at Fed MeetingsIt is noteworthy that only a day ago, the probability of such a scenario was 83%. Investors were reassured by Deutsche Bank reports and First Citizens Bank's statement that it was ready to acquire a controlling stake in the collapsed SVB. The news boosted the yields on treasuries and kept the dollar from falling. Moreover, the well-known in the financial world the manager of the largest fund Black Rock believes that the Fed will continue to raise rates and has no plans to reduce them this year.Indeed, if investors are once again fooled by the Fed's "dovish" reversal, EUR/USD will come under pressure. A similar pattern was seen in February when EUR/USD fell below 1.055 after Jerome Powell's hawkish speech in Congress.The dynamics of the supposed peaks of central banks ratesIt turns out that with good conditions for the growth of EUR/USD there are still risks of strengthening of the dollar. Forex trading at the end of March promises to be quite tense and we might say, nervous. If the pair fails to rise above 1.08, there will be a signal for short-term selling. If the "bulls" pass the resistance, the next target is 1.089.
Mar 28, 2023 Read
Forex analysis and forecast for AUD/USD for today, March 27
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Forex EUR/USD: dollar lost the lead to the euro
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Mar 23, 2023 Read
Forex analysis and forecast for GBP/USD for today, March 22
GBP/USD, currency, Forex analysis and forecast for GBP/USD for today, March 22 While waiting for the Fed's interest rate decision on Wednesday, GBP/USD is moving without any clear direction near the 1.2230 level.Prior to the Fed's release and Jerome Powell's press conference, market participants will pay attention to British inflation data. Analysts expect a decline from 10.1% to 9.8% (y/y) and an increase of 0.6% (m/m).Core inflation is likely to remain at 5.8%.But of course, the main event of the day will be the news from the United States. The Fed has a difficult task. On the one hand the regulator has to continue the fight against inflation, on the other hand it has to pay attention to the problems of the financial sector and not to allow the banks to go bankrupt.Analysts mostly believe that the Fed will choose the "middle" option and raise the rate not by 50 but by 25 basis points to 5.00%. Investors want to see from Jerome Powell's speech whether the Fed will end its monetary restriction cycle or take a pause. Or maybe the central bank will continue to raise the rate to the previously indicated targets.The Bank of England will hold a rate hike of 25 basis points tomorrow, although today's inflation report might influence the regulator's decision.Technical Analysis GBP/USDBollinger Band indicator is rising moderately. MACD indicator remains in the positive range. Stochastic Oscillator from the top down is testing the 80% level and trying to get out of the overbought area.Today is an eventful day, each of which can completely cancel the signals of technical analysis. At the same time Forex trading based on the news is risky and for traders who prefer calm position trading, the best option is to stay out of the market.For the followers of "technique", a break-down of the resistance at 1.2283 will be a buy signal. The target is at 1.2400. Stop-loss is taken out at 1.2230.It is advisable to open short positions after the price fixes below support at 1.2yo176. Target level is 1.2100. Stop-loss is set at 1.2225.
Mar 22, 2023 Read
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