FOREX Fundamental analysis on October 5, 2022
It looks like investors are wishful thinking again, hoping that weak business activity indexes and a labor market report will force the Fed to change to a softer monetary policy course.
Against this backdrop, the S&P 500 had its best two-day rally since March 2020, adding 5.7%. Optimists have managed to put a historical spin on the stock market recovery, claiming that the bear market ends with a precipitous rise in stocks. Pessimists believe that there is no trend without a correction.
Indeed, the timing of forex trading is quite complicated. Traders take any hint for a signal of the Fed policy easing. Even the fact that the Reserve Bank of Australia raised its rate not by 50 but by 25 basis points is perceived as a reversal of the global central bank rates, especially since the United States has noticeably worsened macroeconomic statistics.
Of course, after a monetary restriction, it takes time to determine the effectiveness of the regulator's policy. Immediately following a rate hike, the economy will not show signs of illness. Right now the release of weak indexes of business activity in the manufacturing sector and a crushing number of vacancies by 1.1 million suggest that the U.S. economy is slowing down.
At the futures market the expectations of the maximum growth of the interest rate have changed. While a maximum of 5.0% seemed most likely in September, a maximum of 4.7% seemed most likely in October.
The labor market and inflation reports (October 7 and 13) will give some clarity to the dollar's outlook. Without these data it will be too early to speculate on the Fed's behavior. Capital Economics believes that global Central Bank should not slow down but rather increase the speed of monetary easing as inflation has taken on monstrous proportions. Well, another important signal of reversal is that the world economy is ahead of the United States economy. And that's not even on closer examination.
I believe that on the eve of the Non-farm Payrolls release EUR/USD will go into consolidation. We will partially fix profits in long positions from 0.985.
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