FOREX fundamental analysis for EURUSD on May 18, 2023
With Treasury yields lagging behind the interest rate, investors believe that the Central Bank has overextended its financial tightening. There are rumors in the market about an imminent recession, which is confirmed in the readings of some economic indicators. However the reality is not that bad, which is confirmed by other indicators. The optimists believe that an economic downturn can be avoided, and the currency, and in our case it is the dollar, begins to strengthen.
According to the principle of the glass, which can be both half-full and half-empty, it can be said that the yield is lagging behind the rate, not the rate of return. Bonds are a reliable protective asset that is in demand when various risks arise. The more they are bought, the lower the yield. In May, yields began to rise as the banking industry recorded an influx of deposits and Joe Biden has no doubts about a solution to the national debt ceiling.
At the same time, the market is in no hurry to give up on recession risks. Bloomberg, 22 out of 27 experts consider that the recession in the USA will show itself within 12 months. Though, to be fair, we should admit that the beginning of the end is being steadily pushed back. This strengthens the belief in a mild downturn in the U.S. economy and supports the greenback.
It is clear that forex trading has recently fallen under the influence of pessimists who have been prophesying a recession and a dovish reversal of the Fed. Now the probability of a rate hike at the June meeting is growing by the day and has already reached 24%, although the odds of a rate cut in September are still high at 48%.
The market comes to a balance point and EUR/USD is looking for an equilibrium or pivot level. It is possible that the range of 1.080-1.085 will become a prolonged consolidation range until powerful drivers, capable of changing the pair's dynamics, appear on the market.
It is possible that the asset will extend the range to 1.075-1.090, but at the moment we can say that the "bears" forces are running out. Buyers can look for an entry on the decline, sellers can catch the momentum of the upward correction of the pair.