Forex. EUR/USD: investors no longer want to argue with the Fed

USD/CHF analysis on October 11, 2024USD/CHF is currently near the 0.8571 mark and demonstrates readiness for further growth. Nevertheless, the Swiss franc remains one of the most stable currencies among the currencies of developed countries due to strong economic indicators.The Swiss National Bank has already changed the interest rate three times this year and, according to the deputy chairman of the Central Bank, Antoine Martin, there are grounds for another act of monetary expansion by 25 basis points by the end of this year. In September, the consumer price index fell to 0.8%, the lowest level in three years, which allows the bank to adhere to the long—term goal of returning interest rates to negative territory to stimulate capital inflows into the economy.At the same time, the US dollar index is trading at 102.60, which is the highest since mid-August. The growth of the dollar is facilitated by a slowdown in inflation in the United States from 2.5% to 2.4%. A slight increase in the core consumer price index from 3.2% to 3.3% did not put serious pressure on the dollar, as this may be due to a sharp decrease in the interest rate by 50 basis points. Investors expect the Fed to cut rates twice more by the end of the year, both times by 25 basis points, although San Francisco Fed President Mary Daley warned that there may be fewer adjustments. It all depends on the economic data.Technical analysis shows that the USD/CHF pair breaks through the upper limit of the channel 0.8550–0.8390. The main forex indicators indicate continued growth: fast EMA lines cross the signal line upwards, and the AO histogram shows ascending signals.After fixing the price above 0.8610, it is recommended to open long positions with a target of 0.8750. We will set the stop loss at 0.8540.Sales are possible if the price falls below 0.8530. In this case, the target will be 0.8400. We will place the stop loss at 0.8600

During the Asian session on Friday, AUD/USD continues to decline and is trading near the level of 0.6745, remaining under pressure from weak Australian economic data.According to a report by the Australian Bureau of Statistics (ABS), total business activity decreased by 0.7% in August. The decline occurred in seven sectors, with mining (-3.5%) and media (-2.9%) showing the largest declines. At the same time, construction (1.3%), energy (1.2%) and services (1.5%) showed growth. Compared to last year, positive dynamics is observed in twelve of the thirteen sectors, with leaders in the energy sector (17.6%) and the media (8.6%). The only industry that showed a decline over the year is the mining industry (-5.9%).The US dollar index, on the contrary, remains in an uptrend and is trading at a maximum of 102.60. This is due to the adjustment of the September consumer price index — the monthly change was 0.2%, and the annual decrease from 2.5% to 2.4%. On the contrary, the base index excluding volatile categories increased from 3.2% to 3.3%. This may affect the Fed's decision to cut the interest rate at the November meeting in favor of 25 basis points instead of 50.On the daily chart, the AUD/USD pair is located near the support line of the channel with the boundaries of 0.7000–0.6700.Technical indicators indicate a strengthening of the sell signal. The fast EMA lines on the alligator begin to cross the signal line, and the awesome oscillator indicator drops into the sales zone.We will consider short positions after the price settles below 0.6710. We consider 0.6580 to be the nearest target. We will set the stop loss at 0.6760.Purchases can be opened when the price is fixed above 0.6780 with a target of 0.6910 and a stop loss at 0.6720.

FOREX Fundamental analysis for EUR/USD on October 11, 2024The US Federal Reserve has already made it clear that it will not make decisions based on a single report, no matter how important it is.Inflation accelerated in September, and the number of applications for unemployment benefits rose to the highest level since August 2023. These data somewhat eased the pressure on the EUR/USD pair. The pair bounced back from a two-month low. But does this mean that the asset has found the bottom?Of course, the Fed relies on various data in its work. But, in any case, decisions are made by people. Despite the acceleration of core inflation to 3.3% and the rise in consumer prices to 2.4%, the three FOMC members do not attach much importance to this factor. Chicago Fed President Austan Goolsby claims that inflation has been gradually declining for 12-18 months, and his colleague from Richmond, Thomas Barkin, believes that inflation is moving in the right direction. John Williams, head of the Federal Reserve Bank of New York, is also confident that prices are heading towards the 2% target. Only Rafael Bostic of the Atlanta Fed is open to discussing the need to maintain the 5% rate at the November meeting.The futures market forecasts a 43 basis point rate cut in 2024, which is slightly lower than expectations for the ECB deposit rate, which may fall by 47 bps. Recently, these expectations have decreased from 70 bps, which led to a drop in the EUR/USD pair.The dynamics of currency trading on forex is largely determined by the differential rate of tightening of the monetary policy of Central Banks. The ECB is ready to accelerate the pace of monetary expansion, which puts pressure on the euro. Philip Lane, chief economist at the ECB, noted that if new statistics indicate an acceleration in the decline in inflation or an insufficient economic recovery, then rates will be adjusted faster.Bloomberg expects a rate cut at each ECB meeting until March, and then in June and December. As a result, the rate may decrease to 2%, which is lower than the previous forecast of 2.5%.Thus, experts believe that the scale of easing of the ECB's monetary policy may reach 150 bps. Deutsche Bank predicts that if expectations of a rate increase to 170 bps are confirmed, EUR/USD may fall to 1.07. In the worst case scenario, with a global trade war with China, the euro could fall to parity with the dollar.EUR/USD is unlikely to find the bottom before the ECB meeting on October 17. The optimal forex trading strategy remains to sell the pair on the rise to the levels of 1.1-1.102. We also do not exclude sales at the current exchange rate with a target of 1.085.EUR/USD Technical analysisEUR/USD is trying to break through the lower Target zone of 1.0962 - 1.0936. If the pair strengthens lower, then the next target of the bears will be the Golden Zone 1.0878 - 1.0869. If sellers break through the Golden Zone, the price can fall to the Target Zone 2, 1.0794 - 1.0777.If the Target zone of 1.0962 - 1.0936 is held by buyers, then EUR/USD will go into an upward correction. In this case, we will wait for testing of the resistance area 1.1003 - 1.0996 or 1.1058 - 1.1044. From these levels, it will be possible to consider new sales with a goal in the area of yesterday's minimum.

FOREX Fundamental analysis for EUR/USD on October 10, 2024The 50 basis point interest rate cut in September was a major step in adjusting the Fed's monetary policy. Despite the movement of inflation towards target levels and the cooling of the labor market in the summer months, the rate at 5% remains high. In early autumn, with the activation of the labor market, the mood in Forex currency trading led to a drop in the EUR/USD pair.It became known from the minutes of the FOMC meeting that several officials were inclined to reduce the rate by 25 bps, given the strong economy, employment, as well as inflation exceeding 2%. A more cautious decline could signal gradual changes in monetary policy.Proponents of a soft monetary policy insisted that the conditions for a rate cut had developed back in July. However, after the September employment report, their views began to change. Thus, the president of the Federal Reserve Bank of San Francisco, Mary Daly, said that one or two additional acts of monetary expansion may occur in 2024. The derivatives market assumes that the probability of keeping the rate at 5% in November is about 15%. The forecast for a rate cut for the year now stands at 44 basis points, compared with 70 bps at the beginning of the month.Such trends contributed to the strengthening of the US dollar, which became the longest series of growth since April 2022. However, further dynamics depend on inflation data for September. The general consumer price index (CPI) is expected to slow down to 2.3% year—on-year and 0.1% month-on-month, and the base CPI to 3.2% YoY and 0.2% mom.There is an active discussion in the Forex market that only a clear confirmation of the trend of falling inflation will convince the Fed to lower the rate in November by 25 bps. If inflation turns out to be higher than expected, the US dollar will have the opportunity to continue strengthening.Against this background, the Eurozone economy looks weaker. Germany has revised its GDP forecast for 2024 from +0.3% to -0.2%, which could be the first decline since the beginning of the 21st century. The difference in economic growth rates between the US and the Euroblock, as well as a possible ECB rate cut on October 17, put pressure on the EUR/USD pair.Most likely, even the report on American inflation will not bring support to the EUR/USD bulls. Any short-term increase in quotations is likely to be used to form short positions with a target of 1.085.EUR/USD Technical analysisEUR/USD is testing the target zone of 1.0962 - 1.0936. This area is still being held by buyers, so we are not considering a further decline yet. If an upward impulse follows from the target zone, the pair will go into an upward correction. In this case, we are waiting for the price in the resistance area 1.1041 - 1.1031 or 1.093 - 1.1079.After testing these resistances, we will consider new sales of the instrument with the first target in the area of 1.0988 and the second at yesterday's low of 1.0935.

FOREX Fundamental analysis for EUR/USD on October 9, 2024The Fed has taken a historic step in an effort to provide a "soft landing" for the US economy. In September, the Central Bank sharply lowered the federal funds rate, hoping for a slowdown in inflation (CPI and PCE) to the target level of 2% amid a weakening labor market. However, recent data showed that the US economy is still stable, and with a strong economy it is difficult to keep inflation low, and perhaps the Fed made a mistake. This can result in significant losses for bull traders on EURUSD.Mistakes happen to everyone, but they are not uncommon for the Fed. So, at the end of 2023, the Fed made a miscalculation when, reacting to a slowdown in inflation, it announced an upcoming rate cut. However, inflation went up again in the first quarter, which forced the Central Bank to adjust its position and led to a strengthening of the dollar in forex currency trading.In the summer and autumn, the Fed focused on the labor market, trying to prevent a spike in unemployment. But the US economy continued to show resilience and strength, which led to a sharp drop in the EURUSD.Investors are gradually realizing that hopes for a 150 basis point reduction in the federal funds rate by the end of 2025 have been exaggerated. In 1995, the Fed also sought a soft landing, planning to cut the rate by 200 bps, but actually managed to reduce it by only 75 bps.The Fed's decision in September to ease policy by lowering the rate to 5% still keeps pressure on inflation, although not as much as at 5.5%.The ECB, in turn, faces other challenges. European inflation has already fallen below 2%, and weak business activity indicates serious difficulties in the Eurozone economy.According to a Reuters poll, 90% of experts (70 out of 75) predict that the ECB will reduce the deposit rate by 25 bps to 3.25% at the October 17 meeting. A month ago, there were only 12% of such expectations. In addition, most analysts predict another act of monetary expansion in December and a further rate cut to 2.5% by March 2025. This is a more aggressive path than previously expected, but in line with market sentiment.In other words, the Fed is likely to be more cautious, and the ECB will be more decisive, which creates prerequisites for a decrease in the EURUSD. The possible growth of the pair on the publication of the minutes of the Fed meeting and data on inflation in the United States will be used to sell the asset in the direction of $1,085.EUR/USD Technical analysisEUR/USD is trying to break through the lower Target zone of 1.0962 - 1.0936. If the sellers succeed, the pair may go down to the Golden zone of 1.0878 - 1.0869. Large sales are planned to be fixed in this area, and the asset may go into an upward correction.If it is not possible to break through the Target zone during today's trading, then a corrective growth towards the resistance area 1.1043 - 1.1035 will begin. After testing this zone, we will look for entry into new sales with the first target in the area at 1.0997. The second target is 1.0951.

FOREX Fundamental analysis for EUR/USD on October 8, 2024Forex currency trading, as a rule, takes everything into account, and expectations of a reduction in the US federal funds rate by 150-200 basis points by the end of 2025 have already been incorporated into the dollar exchange rate. However, this scenario changed after the publication of the American labor market data. Prior to this report, the probability that the Fed would cut the rate by 50 basis points in November was estimated at 36%. A day later, the futures market has already ruled out such an option, and the probability of keeping the rate at 5% is now 14%. In such circumstances, the euro is falling against the dollar.The beginning of 2024 turned out to be successful for the dollar: in January-July, the USD index increased by 5%. But then, when the U.S. economy began to show signs of slowing down, investors decided that the dollar would lose ground by the end of the year. However, these expectations were not fulfilled — EUR/USD only briefly rose above the 1.12 mark, after which it fell sharply. If the Fed's rate review continues in October, the pressure on the euro may increase.Nordea analysts predict that by the end of 2024, EUR/USD will fall to 1.09, and by mid—2025 to 1.07, after which the euro may begin to strengthen. However, for this to happen, the global economy must overtake the American one, which is now unlikely. The eurozone is stagnating, Germany is on the verge of recession, and Chinese monetary stimulus will take time to have a noticeable effect. Investors, judging by the reaction of China's stock markets, expect more decisive steps.Thus, the EUR/USD depreciation is due to the market's revision of the Fed's expected steps against the background of US employment data, as well as the return of the theme of "American exceptionalism" to the stage. The dollar may have new advantages. Donald Trump's victory in the presidential election could lead to new trade wars, supply chain disruptions and accelerated inflation around the world. The conflict between Israel and Iran could have similar consequences. In both cases, the Fed may suspend the process of lowering rates or even return to tightening monetary policy, which will strengthen the dollar's position among the forex currency indices.Nevertheless, before the publication of the US inflation report, the EUR/USD bulls may launch a counterattack. Bloomberg experts expect consumer price growth to slow to 2.3%, which will create prerequisites for a Fed rate cut in November by 25 basis points and put pressure on the dollar. At the same time, the president of the Federal Reserve Bank of New York, John Williams, believes that the FOMC forecast for a 50 basis point rate cut in 2024 is a completely realistic scenario.Probably, we are talking about the classic method of forex trading, when an asset is bought on rumors and sold upon the release of data. In this case, any short-term strengthening of EUR/USD to the level of 1.1-1.102 can be used as a selling opportunity.EUR/USD Technical analysisEUR/USD corrects the short-term downtrend. The probable target of the upward correction is the resistance area 1.1043 - 1.1035. After testing the target range, we will look for entry into new sales with the first target in the area of the 1.0997 level. The second potential target is the October 4th minimum at 1.0951.If the Target zone 1.0962 - 1.0936 is broken down during trading and the price is fixed lower, then the next target for sales will be the Gold zone 1.0878 - 1.0869.

FOREX Fundamental analysis for EUR/USD on October 7, 2024If the report on the US labor market (Non-farm Payrolls) cannot dissuade investors expecting an imminent recession, then probably nothing will be able to change their minds. In September, employment increased by 254,000 jobs, which significantly exceeded the expectations of Bloomberg analysts. Additionally, the data for the previous two months were revised upward by 72 thousand. The unemployment rate dropped to 4.1%, and average wage growth accelerated to 4%. The strong US economy provoked a sharp drop in the EURUSD exchange rate.The US dollar showed the strongest growth in a week since September 2022, against the background of a significant decrease in the probability of monetary expansion in November — from 63% to 2%, and Treasury bond yields rose to three-month highs. The sharp strengthening of the dollar in forex currency trading contrasted with the rapid growth of American stock indexes, where good economic news once again became the impetus for a rally.The growth of the S&P 500 index is associated with a "goldilocks" scenario — a balance between economic growth and slowing inflation. However, challenges such as geopolitics, the pre-election volatility of currency pairs and the possible acceleration of inflation can trigger a correction in stock indices and at the same time strengthen the dollar.Even proponents of the Fed's soft policy, such as Chicago Fed President Austin Goolsby, recognize the risks that inflation may not return to the 2% target. A strong economy and labor market, the likelihood of oil prices rising to $100 per barrel in the event of an escalation of the conflict in the Middle East, as well as new fiscal incentives, regardless of who wins the election — Donald Trump or Kamala Harris — increase the chances of a spike in inflation.The situation is reminiscent of the 1970s, when the Fed prematurely declared victory over inflation, which led to a double recession. According to Yardeni Research forecasts, the Federal Reserve may stop cutting rates in 2024. If the analysts are right and the markets expecting a 50 basis point decline are wrong, EURUSD may continue to fall.However, it is unlikely that inflation will rise significantly in September. Bloomberg experts expect a slowdown in consumer prices to 2.3%, which confirms the continuation of disinflation and will help maintain optimism in the stock market. The euro may temporarily stabilize amid the growth of the S&P 500, but most likely this period will be short-lived.EURUSD sales, formed above 1.12 and strengthened from 1.1045, look good. The pair has a good chance of returning to the levels of 1,085 and below, so the forex trading strategy – shorts from any growth, remains relevant.EUR/USD Technical analysisLast Friday, the short-term downward trend of EUR/USD continued, and the pair reached the lower target zone of 1.0962 - 1.0936. This area is a strong support. If sellers can break through it, the pair will go to the golden zone of 1.0878 - 1.0869.If the target zone is held by buyers, then an upward correction will begin, at the end of which it will be possible to consider selling the instrument from the resistance area (A) 1.1043 - 1.1035. The first sales target will be the 1.0997 level. The second one is at least on October 4

FOREX Fundamental analysis for EUR/USD on October 3, 2024Historically, various geopolitical collapses - wars, epidemics or financial crises - have strengthened the position of the US dollar in forex currency trading. In early October, despite rising tensions in the Middle East, the reaction of the markets was restrained, with the exception of oil. The EUR/USD pair is declining, helped by strong data on the US labor market and expectations of a reduction in the deposit rate of the European Central Bank. Although the global situation is worrisome, investors are not in a hurry to invest in protective assets yet.The increase in the number of vacancies in August and employment data in the United States from ADP, where 143 thousand jobs were created in September, which exceeded forecasts and reduced the likelihood of a Fed rate cut by 50 basis points from 37% to 33%. At the end of September, this probability was higher — 63%.Non-farm Payrolls is coming out on Friday, and if the data on applications for unemployment benefits and the general state of the labor market turn out to be positive, the Fed may not worry about a slowdown in the economy. In this case, the gradual normalization of monetary policy will continue, where the key word is "gradual". However, not all FOMC members consider the fight against inflation to be over. The head of the Federal Reserve Bank of Richmond, Thomas Barkin, notes that the Fed has yet to continue the fight in this directionThe Bank for International Settlements also warns of the risks of price increases related to military conflicts, climate change and trade tensions. In this context, an escalation in the Middle East could strengthen the US dollar: as a safe haven currency and in the event of an increase in oil prices to $100 per barrel. Such bets are becoming more and more popular in the derivatives market.Meanwhile, OPEC+ sees no reason to worry and plans to increase production by 180 thousand barrels per day from December. Saudi Arabia has warned that in case of non-compliance with obligations, oil prices may fall to $50 per barrel.If Israel's retaliatory actions turn out to be symbolic, as in April, the situation in the markets will quickly return to normal. However, this is unlikely to stop the downward trend in EUR/USD. The ECB's rhetoric is increasingly shifting towards the "dovish", and even such "hawks" as Isabelle Schnabel recognize the presence of factors constraining economic growth and mention the risks of deflation. This reinforces expectations of a reduction in the deposit rate in October.Before making final decisions, markets are waiting for the US labor market report for September. In the near future, EUR/USD is likely to remain in the range of 1.1–1.105, although short-term sales opened above 1.12 should be maintained.EUR/USD Technical analysisYesterday, EUR/USD changed its short-term trend to a downward one, as sellers were able to break through the support area 1.1088 - 1.1075. Now the target of the bears is the lower target zone of 1.0962 - 1.0936. We will consider new sales on an upward correction to strong resistance levels.These are currently: the resistance area 1.1117 - 1.1108 and 1.1163 - 1.1150. After testing any of these zones, you should pay attention to the reaction of sellers and wait for the appropriate signals to appear and only then open a short position. To change the direction of the trend to an upward one, buyers need to break through the 1.1163 level and consolidate higher.