Forex EUR/USD: market waiting for Non-farm Payrolls

EUR/USD, currency, Forex EUR/USD: market waiting for Non-farm Payrolls

FOREX Fundamental analysis for EURUSD on April 7, 2023

Currency trading on the forex market has recently received contradictory signals, which greatly complicates the work of the trader. Bonds are suggesting an imminent recession, stocks are rejecting negative news, and the decline in the dollar index is suggesting a mild economic slowdown. Today's U.S. labor market report may line up all the factors, but preliminary data from ADP spoils the picture for dollar buyers.

The steady fall in the yield curve to record lows confirms the likelihood of a recession. At the same time, stocks are in no hurry to decline, which looks strange, to say the least, amid weak macroeconomic reports.

Yield curve dynamics

When the S&P 500 is holding on to its old levels and the yields of the Treasuries are plummeting, EURUSD tends to go up. But in 2023, the situation in the financial markets has changed many times, causing chaos and turmoil. Most likely, the future course of the dollar and other currency assets will largely depend on the decision of the Fed on monetary policy. The view among FOMC members remains that a rate hike is necessary as long as the U.S. labor market remains reasonably strong. Inflation is well above the 2% target, and if we stop fighting it, it will quickly return to strengthening.

Yield curve dynamics

However, derivatives expect the Fed to start cutting rates as early as July. And there is some risk in that for EUR/USD buyers. If the regulator does not move to soften the rate, the dollar will get a great chance for revenge. But, this is, of course, a matter for the future. For now it makes sense to concentrate on today's Non-farm Payrolls.

A weak report will allow EUR/USD to continue rising to 1.12 and 1.14. If the statistics is a surprise, the pair will start a downside pullback and it will endanger our longs from the support at 1.089.

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EUR/USD: the problems are just beginning for the euro
EUR/USD, currency, EUR/USD: the problems are just beginning for the euro FOREX Fundamental analysis for EUR/USD on June 24, 2024Politics, through financial markets, certainly affects the economy. Thus, the increase in the cost of borrowing increases the burden on servicing the national debt and slows down GDP growth. This is also reflected in business activity, as expectations of an alarming outlook negatively affect purchasing managers' indices. The situation in France, where political instability has widened the yield spreads of French and German bonds and lowered the European PMI, clearly demonstrates the reasons for the fall of the EURUSD.Until June, the pair showed steady growth against the backdrop of a slowdown in the US economy, while Europe showed signs of recovery. The gap in GDP growth between the United States and Europe was narrowing, American exceptionalism was becoming a thing of the past, and investors began to focus on synchronizing the global economy. However, in the summer, forex currency trading changed its positioning againAlthough the US economy continued to cool, as evidenced by the decline in the Citigroup economic surprise index to a low of mid-2022, the snap elections in France, the US trade conflicts with the EU and China, as well as the slowdown in the Eurozone economy turned the EURUSD down.In France, the National Rally is gaining momentum, which, according to polls, is supported by 36% of voters, while the New Popular Front and the Revival of Emmanuel Macron receive 27% and 20%, respectively. If the right gets a majority in parliament, this could lead to a confrontation with the EU, although the situation is likely to develop according to the Italian scenario with compromises.If Marine Le Pen's party does not achieve a convincing victory, a minority government will be formed, which will calm the markets, but slow down the French economy. In any case, there are no favorable scenarios for EURUSD, and the pair will remain under pressure before the first round of elections on June 30.The decline in economic activity in the United States and the rally of American stock indexes, due to artificial intelligence technologies, mitigated the fall of the EURUSD. However, with the acceleration of business activity in the United States, the pair fell below 1.07. Until the Fed starts talking about cutting rates, the difference in yields between U.S. Treasury bonds and their German counterparts will support the dollar.Normalization of the political situation in France and a further slowdown in the US economy are necessary to stabilize the EURUSD. But new problems for the euro are already on the horizon. An increase in EU import duties on Chinese electric vehicles may trigger retaliatory measures by Beijing, and the upcoming US presidential election will increase the risks of anti-globalist policies. The inability of the EURUSD to return above 1.0715 indicates the weakness of the bulls and gives a signal to build up short positions.Technical analysis for EUR/USDEUR/USD is trading in a short-term downtrend. Last week, buyers tested the resistance area (A) 1.0760 - 1.0751, but sellers were able to hold this milestone. As a result, the pair declined and reached the first target of the bears - 1.0714. The next target is the minimum of June 14. We are holding previously opened short positions and will increase them on upward pullbacks and correctionsHowever, if the situation changes dramatically, the pair returns to growth and breaks through the resistance (A) upwards, then we believe that the upward correction will continue to the resistance area (B) 1.0806 - 1.0793. The trend line also runs here. From this area, we will also consider sales.
Jun 24, 2024 Read
EUR/USD: buy on the decline, sell on the strengthening
EUR/USD, currency, EUR/USD: buy on the decline, sell on the strengthening FOREX Fundamental analysis for EUR/USD on June 20, 2024The parity of the euro and the dollar is not expected. Eurosceptics do not plan to develop a Frexit plan that could bring down the exchange rate of the single currency and, as a result, the EUR/USD pair. Marine Le Pen confirmed that her National Unification party is ready to cooperate with Emmanuel Macron and complies with current legislation. Is it possible that after coming to power, the right will abandon their promises to reduce taxes and expand budget spending on social needs? If so, then the political crisis in France will end before it has even begun.After the victory of the party For Freedom in the elections in the Netherlands, its leader Geert Wilders abandoned the idea of holding a referendum on leaving the EU. Georgia Meloni, who criticized the EU, turned into a team player after being appointed Prime Minister of Italy and cooperates with Brussels. Everyone understands that the political popularity of the euro outweighs its economic disadvantages. And it is unlikely that citizens of the European Union countries will want to change the euro to a depreciating local currency.There is practically no chance of the EU breaking up. The main concerns of investors were related to the contradictions between the policy of the "National Association" and the European Union. Brussels will insist on compliance with the financial stability pact, which requires countries with debt above 60% of GDP to reduce the deficit to 3%. France, with its 111% debt, has a negative budget balance of 5.5%. Fiscal incentives, so widely promised by the right, can further increase it.There is also no point in panicking about the growth of the yield differential of French and German bonds to the maximum since 2012. The main reason for the differential is the reduction in German debt rates based on expectations of a weakening of the ECB's monetary policy. French debt rates remain stable, and buyers are on them.It is possible that the European Central Bank (ECB) will intervene in the situation, although it is unlikely to rescue Paris directly, preferring to purchase bonds of those Eurozone countries that are being sold off after the French ones. The fact that the ECB does not consider the current fluctuations in the European bond market to be critical indicates that the situation is not as dire as it seems.We can say that politics will not drown the euro. However, this does not mean that EUR/USD quotes cannot fall from current values. According to Nordea, the Fed will keep the rate at 5.5% until the last and will reduce it only in December. On the contrary, the ECB will take two more steps to ease monetary policy in 2024, since one reduction in the deposit rate from 4% to 3.75% is not enough to support the weak Eurozone economy.If we add to this the possible response of China in the trade war with the EU and the risks of Donald Trump's return to power with his protectionist policies, it becomes clear that EUR/USD is unlikely to be able to count on rapid growth. However, it is still possible to profit from forex trading on the news. The positive is suitable for purchases from the 1.0755 level and negative factors for sales from the 1.0725 level.
Jun 20, 2024 Read
USDCHF: will the Swiss Central Bank continue to cut rates?
USD/CHF, currency, USDCHF: will the Swiss Central Bank continue to cut rates? FOREX Fundamental analysis for USDCHF on June 18, 2024Investors are in the dark: will the Swiss National Bank (SNB) cut the key rate at the meeting on June 20 or leave it at 1.5%? After the start of the monetary policy easing cycle in March, the Swiss franc, which was the best G10 currency by the end of 2023, turned into a clear outsider relative to other forex currency indices. However, uncertainty about the SNB's next steps, rising political risks in Europe, slowing inflation in the United States and increased volatility of the franc suggest a possible end to the upward trend in USDCHF.The chances of a reduction in the key rate, according to derivatives estimates, are now regarded as fifty-fifty. In early April, they peaked at 97.7%, but fell sharply to 33.6% after the "hawkish" statements by the head of the SNB, Thomas Jordan. Jordan noted that the weakness of the franc is the main driver of inflation growth, and the SNB will fight this with currency interventions. Investors have found confirmation of the words of the head of the regulator. HSBC claims that, according to data on Swiss foreign exchange reserves, the National Bank either switched to buying the franc or significantly reduced its sales.As a result, the franc has strengthened again and is leading among the G10 currencies over the past 30 days. The growth of political risks in Europe, expressed in the widening of the yield difference between French and German bonds, also supports the franc as a protective asset.The market doubts that the SNB will continue easing monetary policy in June. This assumption is supported by a stronger-than-expected economy and inflation, which settled at 1.4% in May, in line with SNB forecasts for the second quarter. If the CPI turned out to be lower, it would be safe to talk about a further reduction in the key rate.The main arguments in favor of continuing to ease the SNB's policy are the franc, which has strengthened compared to the previous meeting of the Central Bank, and the overly emotional reaction of investors to Thomas Jordan's words about currency interventions. The head of the Central Bank could speak hypothetically, and it is unlikely that he is now interested in interfering in Forex currency trading. Supporters of this version were surprised by the market reaction to Jordan's statements.According to Bloomberg, the SNB will prefer to wait and see if there are any new surprises in the dynamics of inflation. If not, it will be possible to resume the cycle of monetary policy easing. UBS adheres to a similar position and has completely revised its forecast for a key rate cut in June.It can be said that the market remains in the dark about the actions of the SNB. If another step is taken along the path of monetary expansion, this may lead to an increase in USDCHF quotes to the level of 0.9, from where it will be possible to sell the pair. Otherwise, with the rate at 1.5%, we get the basis for the formation of short positions with target marks of 0.88 and 0.87.
Jun 18, 2024 Read
EURUSD: it's too early for the Fed to celebrate victory over inflation:
EUR/USD, currency, EURUSD: it\'s too early for the Fed to celebrate victory over inflation: FOREX Fundamental analysis for EUR/USD on June 14, 2024The Federal Reserve System (Fed) refuses to celebrate the victory over inflation. The risks of political instability in France and the deterioration of the country's financial system also negatively affect the EURUSD rate. Despite the rally in stock indexes, lower Treasury yields and slowing inflation in the United States, the regional currency remains under pressure. This is reminiscent of the old principle of the market – not to go against the Fed.The Fed's position is clear. In the 70s of the last century, the premature celebration of the victory over inflation led to a double recession, and no one wants to repeat this mistake. It is no coincidence that Jerome Powell talks everywhere about the conservatism of the Federal Reserve.At the same time, the recent FOMC forecasts already look outdated against the background of an almost unchanged base CPI and a reduction in PPI in May. Nomura estimates that the personal consumption expenditure index (PCE) will fall to 0.113% on a monthly basis, which implies a drop in PCE below the target level of 2% per annum. Three- and six-month consumer price metrics confirm the development of disinflation.Potential implications for the U.S. economyKeeping the federal funds rate at 5.5% may have a negative impact on both the economy and US stock indices, and through currency correlation on risky assets. For stock markets, bad news from macroeconomic indicators becomes good, but this trend cannot continue indefinitely. The correction of the S&P 500 can cause an increase in demand for the dollar as a protective toolPolitical instability in EuropePolitical instability in Europe is exacerbating the EURUSD situation. France is not Greece, its finances are in better condition than those of the troubled Eurozone countries, but the situation is getting worse, as evidenced by the downgrade of the S&P Global credit rating. The reluctance of the French to tighten their belts and the possible rise to power of eurosceptics may worsen the situation.Forecasts and trading strategyRising government spending, budget deficits and public debt in France could lead to conflict with the European Union, French bond sales and rising yields, which would hit Europe's largest banking system. Paris should take into account the lessons of London, where in 2022 the intention of the Liz Truss government to reduce taxes without adequate financing led to the collapse of bonds and the pound. A similar scenario may develop for EURUSD, despite the positive signals from the United States.If the market is not moving in the expected direction, it is likely to head in the opposite direction – a well-known postulate of forex currency trading. The rise of the EURUSD against the background of a slowdown in the American CPI resembles a "dead cat jump". We keep short positions open in the area of 1.0835-1.085 and increase them on upward pullbacks. The targets remain at 1.06 and 1.05 levels.
Jun 14, 2024 Read
EUR/USD: market is waiting for a Fed rate cut
EUR/USD, currency, EUR/USD: market is waiting for a Fed rate cut FOREX Fundamental analysis for EUR/USD on June 13, 2024The Federal Reserve System (Fed) in its updated forecasts points to one reduction in the federal funds rate in 2024, urging "trust, but check." The market, responding to the same principle, continues to believe in two acts of monetary expansion after the release of the May inflation report in the United States. In an environment where monetary policy depends on data, statistics become the main factor of influence. However, this time the market reacted unexpectedly, causing fluctuations in the EURUSD rate.Reaction to inflation dataThe absence of an increase in core inflation with an increase in consumer prices by 0.16% (mom) has energized the bulls. The probability of a federal funds rate cut in September jumped to 80%, and the chances of two acts of monetary expansion in 2024 jumped to 69%. As a result, the yield on U.S. Treasury bonds fell sharply, dragging the dollar with it.Jerome Powell's comments and updated FOMC forecastsAt yesterday's press conference, Jerome Powell noted that the Fed has made some progress in combating inflation and called the May report a step in the right direction, but stressed the need to generate further confirmation signals. Despite this, the markets reacted quite violently to the updated FOMC rate forecast.Four FOMC members do not expect monetary policy easing in 2024. Seven members supported one act of monetary expansion, and eight supported two. In the spring, it was about two and five members, respectively. Previously, ten members of the Committee had seen at least three cuts in the federal funds rate. Now their views have changed, which allowed the EURUSD bears to partially recover from the blows inflicted by the inflation statistics for May.Market expectations and the Fed's cautionAlthough the chances of a rate cut in September fell to 62%, derivatives still point to a 62% probability of two acts of monetary expansion in 2024. Investors believe that the Fed's estimates are too conservative and that the Fed may be overly cautious.Unlike other world central banks, which have already lowered rates or expressed confidence in achieving inflation goals, the Fed is in no hurry to ease monetary policy. This is due to strong US GDP growth, which is holding back the Fed's change of course. The US financial system is less dependent on bank lending than in the past, and many homeowners are protected from aggressive monetary restriction in 2022-2023 due to fixed mortgage rates.Historical lessons and current strategyNevertheless, the Fed must be prudent and careful to avoid the mistakes of the 70s of the last century, when the premature declaration of victory over inflation led to a double recession. This caution helped to avoid a catastrophic fall in the dollar. After the slowdown in CPI growth and the FOMC forecast for one rate cut, our forex trading strategy presupposes the sale of EURUSD on strengthening. Those who took advantage of this advice were able to open short positions in the area of 1.0835-1.085. We continue to hold the shorts.EUR/USD Technical analysisAfter the Fed's two-day interest rate meeting, the US dollar weakened against most world currencies. This allowed EUR/USD to strengthen towards the resistance area (B) 1.0858 - 1.0845.But here the pair met resistance from sellers and failed to break above the key level.. This suggests that today the downward short-term trend remains in force. We will consider selling the pair on an upward correction with the nearest target at 1.0788. The second target will be at least on June 11.To change the trend and switch to buying EUR/USD, it is necessary to break through the 1.0858 level and consolidate higher. In this case, the direction of the short-term trend will change to an upward one with a target in the area of 1.0996 - 1.0971.
Jun 13, 2024 Read
EUR/USD: this summer may be hot for the euro
EUR/USD, currency, EUR/USD: this summer may be hot for the euro FOREX Fundamental analysis for EUR/USD on June 11, 2024Act first, then evaluate. This is the reality of forex currency trading – analyze actions after, not before. As for the news, a few days later it is possible to assess more objectively the impressive US employment data for May and the sale of European assets against the background of news about the snap elections in France. Perhaps Emmanuel Macron's decision will be justified, and the slowdown in inflation in the United States will give EUR/USD buyers the opportunity to recover. But all this does not become clear immediately.The euro bounced back from five-week lows as US inflation data and the Fed's rate forecast look serious enough to close some positions. Hedge funds became pure euro bulls for the first time since August and suffered losses due to their confidence.Few people want to make hasty decisions now, wondering if American inflation will slow down. This will definitely affect the Fed's forecasts. If the growth rate of consumer prices decreases, officials are likely to be inclined to two acts of monetary expansion before the end of 2024. If inflation slows down, we will see only one rate cut. In this case, the chances of a rate cut in September will drop sharply, and the market will begin to doubt whether the Fed will ease monetary policy at all this year.With a consistently strong economy and inflation, the best solution for the Fed is to do nothing at all. Judging by the rhetoric of FOMC officials, the Fed decided to take a break in the summer to get more data to make important decisions. Political tensions are also making the world's regulators more patient. Few people want to lower the stakes before the elections, so as not to be accused of supporting the current government.In the UK, France and the USA, the political situation can change at any moment. The victory of Labour over the Conservatives is perceived as a boon for the pound, while the rise of eurosceptics to power in France causes concern among investors. If they form a government, their spending program could lead to conflict between Paris and Brussels. According to Pictet Wealth Management, such a scenario would provoke an economic catastrophe for France. It is not surprising that the volatility of currency pairs with the euro has increased sharply, and the risks of a reversal for EUR/USD have decreased, which indicates a "bearish" market sentiment.RBC Capital Markets forecasts a decline in the main currency pair to 1.05 in the third quarter, and Union Bancaire Privee believes that the single currency will be under pressure in the next three weeks. Credit Agricole estimates that further widening of the French and German bond yield spreads will lead to the sale of EUR/USD.However, to begin with, the main currency pair needs to pass a test in the form of data on American inflation and the Fed meeting. The acceleration of consumer price growth will be the catalyst for the fall of EUR/USD to 1.06. Their slowdown will allow the euro to return to the $1.08 mark. Let's wait and see soon.
Jun 11, 2024 Read
EUR/USD: The European currency gets a double whammy
EUR/USD, currency, EUR/USD: The European currency gets a double whammy FOREX Fundamental analysis for EUR/USD on June 10, 2024Forex currency trading is based on economic factors, but at the moment it is political events that have had a decisive impact on the euro exchange rate. The strong report on the US labor market for May turned out to be a shock for buyers of EUR/USD. The impressive increase in employment by 272,000, the retention of unemployment at 4% for 30 months and steady wage growth indicate the strength of the US economy. But the trouble does not come alone: the dissolution of the National Assembly (Parliament) in France and the appointment of the first snap parliamentary elections since 1997 have aggravated the situation for the euro.Emmanuel Macron's decision to schedule elections for June 30 and July 7 was controversial, but the French president said he could not help but react to his party's defeat in the European elections. The Renaissance party, which relied on European unity, received half as many votes as the National Association with its 31%. Eurosceptics have skillfully taken advantage of the discontent of the French due to inflation, security problems and migration.The situation is reminiscent of 2012, when the fear of Marine Le Pen coming to power was one of the key factors in the fall of the euro from $1.33 to $1.21. Newly emerging political risks and threats of Eurozone fragmentation could lead EUR/USD to parity, especially if the Fed does not lower the federal funds rate in 2024. The chances of this have increased after an unexpectedly strong report on the US labor market.Employment growth may be driven by record immigration, but there is no denying that the American economy is developing unevenly. The rich continue to spend money, which manifests itself in an increase in employment in the service sector and an increase in expenses, while the poor are limited to purchases of basic necessities. Unsurprisingly, positive data on the United States alternate with negative ones.For the Fed, a strong labor market is a reason to revise forecasts. In March, FOMC members expected three acts of monetary expansion. According to a Bloomberg survey, 41% of experts expect this estimate to be reduced to two, and the same number of respondents predict one decrease. This coincides with the expectations of the futures market, which predicts 1-2 cuts in the federal funds rate in 2024. The chances of a rate cut in September dropped from almost 70% to 52%.The collapse of EUR/USD would not have been possible without asset managers, who have been building up short positions on the US dollar for six weeks in a row, which has become the longest series since 2022.The idea of a slowdown in the American economy turned out to be wrong. Now is the time to reconsider your positions. Sustained inflation in the United States may change the Fed's approach to the federal funds rate, and expectations of parliamentary elections in France may lead to a further fall in EUR/USD in the direction of 1.06 and 1.05. We will either sell on the market, or wait for data on the American CPI.
Jun 10, 2024 Read
EUR/USD: ECB will cut the rate before the Fed
EUR/USD, currency, EUR/USD: ECB will cut the rate before the Fed FOREX Fundamental analysis for EUR/USD on June 7, 2024The European Central Bank (ECB) has nevertheless issued a signal about the imminent easing of monetary policy, which will have a positive impact on the Eurozone economy. The decision to reduce the deposit rate from 4% to 3.75%, for the first time in almost five years, has received market approval. ECB President Christine Lagarde noted that the cycle of monetary expansion may continue, although it will depend on economic data. As a result, the EUR/USD pair tried to break up the important level of 1.09. Most forex crosses with the European currency also showed steady growth.And, although the ECB has joined other Central Banks of the G10 countries in cutting rates, euro supporters still have reason to be optimistic. The forecasts for core inflation were raised from 2.3% to 2.5% for 2024 and from 2% to 2.2% for 2025. The ECB noted that inflation is likely to remain above target next year..At the same time, Christine Lagarde noted that despite the reduction in rates, the monetary policy of the European regulator will remain restraining. The head of the Austrian Central Bank, Robert Holzmann, expressed doubts about the majority's decision, pointing to its dependence on data. At the same time, Bloomberg sources claim that the ECB's Governing Council does not plan further steps for monetary expansion in July, and some of its members doubt the need for such actions in September. As a result, the yield of German bonds increased, and the spread with American counterparts decreased, which contributed to the growth of EUR/USD.In the futures market, the probability of a September ECB rate cut has dropped from 80% to 70%. Derivatives indicate a reduction in the deposit rate by 36 basis points in 2024, assuming a probability of less than 50% by the end of the year, another step towards monetary expansion.. Similar forecasts are made for the federal funds rate in the United States. This eliminates the divergence of the monetary policy rates of Frankfurt and Washington, which reduces the risks of a return of EUR/USD to the April low of 1.06.Further movements of the EUR/USD pair will depend on the data on the American labor market for May. Bloomberg experts predict employment growth in the non-agricultural sector by 185 thousand, an unemployment rate of 3.9% and wage growth of 3.9%. Data close to consensus is unlikely to affect the chances of a weakening of the Fed's monetary policy and the EUR/USD exchange rate. So far, derivatives suggest a reduction in the federal funds rate in September with a probability of 68%.Unexpected employment data may change this dynamic. If the American statistics seriously disappoint, the yield on treasury bonds will decrease, and EUR/USD will continue to grow towards 1.108. In anticipation of the NFP and the upcoming inflation release on June 12, we continue to adhere to the buying strategy.Technical analysis for EUR/USDOn Thursday, EUR/USD tested the 1.0874 - 1.0869 support area again.And again unsuccessfully, as buyers were able to defend the key range. In the short term, the trend remains upward. We continue to keep purchases with a goal at the maximum level from June 4. If the maximum is still updated, then the next target for the bulls is the "golden zone" 1.0945 - 1.0937.To generate sales of EUR/USD, it is necessary to consolidate below the support level of 1.0870. In this case, it will be possible to look at short positions with a target in the support area 1.0832 - 1.0823. It should be borne in mind that sales will be transactions in correction, that is, against the main trend, therefore it is necessary to reduce risks when opening orders.
Jun 07, 2024 Read
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