FOREX Fundamental analysis for EURUSD on December 2, 2022
Throughout the years 2021-2022 the US dollar has been strengthening, but as we know, nothing lasts forever, including in forex currency trading. Even the strongest trends come to an end at some point, only to reverse later.
The dollar hit its highest level in 20 years in September, but then the Fed changed its strategy out of fear of the negative effects of a tight exchange rate on the US economy, which eventually led to a trend reversal in the EUR/USD pair.
The dollar strengthened against the backdrop of the Fed's fight against high inflation. Growth in the Personal Consumption Expenditures Index slowed from 6.3% to 6.0% in October. We see that inflation is not only down in the United States. According to Bloomberg, global CPI growth slowed from 9.8% to 9.5% with a forecast of 5.3% by the end of 2023.
We can assume that if global inflation weakens, then global central banks will move to a softer monetary policy stance. Obviously, the first to realize this were hedge fund managers, actively increasing sales of the U.S. dollar. A little later they were joined by big asset owners. When two such powerful groups of speculators rock the market, the dollar index tends to react. Suffice it to recall the dollar sell-offs in 2017 and 2020.
The U.S. labor market report will be released today, which will allow the Fed to decide the outlook for monetary policy. If the statistics are worse than expected, the possibility of the Fed slowing down its monetary tightening will rise considerably.
At the same time EUR/USD has been strengthening for quite a long time and speculators might start taking buy positions before the news. For sure, the big players will take advantage of this circumstance by opening sales against the crowd. We will partially cover the previously formed purchases.