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.
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.