FOREX fundamental analysis for EUR/USD on November 25, 2022
While the European Central Bank was considering the need to tighten its monetary policy, the Fed was actively pursuing a hawkish course. Now the Fed, which has run the fastest and furthest, decides to take a breather while the European regulator is considering a deposit rate hike of 75 basis points at once in December. This shift in central bank positioning is supporting the European currency.
ECB Governing Council member Isabelle Schnabel believes that now is not the time to slow down the pace of monetary restriction. In her view, fiscal stimulus from the government helps accelerate inflation, and a weak rate hike in this environment, will lead to an even greater decline in European bond yields and weaken financial conditions.
This week investors were pleasantly surprised by the indices of consumer confidence, business activity and business climate in the Eurozone. Coupled with the drop in gas prices, we can say that the recession in the Eurobloc economy will not be as deep and prolonged as previously thought. Euro zone economy will soon start to recover and ECB has to decide on the course of monetary policy in order not to kill the weak shoots of economic growth.
After the release of good statistics on the Eurozone, European stock indices started to recover. Moreover, their dynamics over the last week outperformed those of the S&P 500, which contributes to the overflow of capital from the New World to the Old World.
Nevertheless, both the Fed and the ECB are addressing the same problem. They are fighting rising inflation, the behavior of which is little predictable. On the one hand, falling energy and commodity costs are driving consumer prices down. On the other hand, the new plowing of COVID-19 in China may again disrupt the logistics of supply, which will lead to a new round of price increases.
For now we can only say that the EUR/USD path will be very tortuous. The forex trading strategy "buy and hold" is unlikely to be profitable for investors. With such asset dynamics, market participants will have to enter, exit and roll over quickly. We believe that fixation of EUR/USD below 1.038 will be a signal for the formation of short positions.