FOREX Fundamental analysis for EURUSD on December 7, 2022
Investors' hope for easing of the Fed's monetary policy and reduction of risks for the U.S. economy recession cancelled the unconditional superiority of the US dollar. EURUSD has recovered 9.6% from its September lows, but remains 8% below its year-beginning level. Experts think that the single currency has no reason to continue its growth so far.
At the same time the three main drivers of the dollar's strengthening - the tight monetary policy of the Fed, the exceptional nature of the American economy and the high demand for protective assets - have worn out a little. The dollar lost 5% in November, its worst performance since September 2010. For the first time in 16 months, speculators were active sellers of the greenback.
On the other hand, against the backdrop of a slowing economy, the surge in stock indices looks strange. According to analysts, at the moment US shares are overestimated, moreover, according to forecasts corporate revenues in the fourth quarter will reduce quite noticeably.
Due to the potential decrease in the stock indices, and through the correlation of currencies and risky assets, the consensus forecast for EUR/USD is 1.02. According to Reuters analysts after 12 months the pair will reach 1.07, that is not able to fully recover the losses of 2022.
The main factors of the pair's recovery next year will be the reduction of divergence between the USA and the Eurozone economic growth, the victory of China over COVID-19 and the improvement of risk appetite. The United States is likely to face an economic slowdown in the second half of next year.
The dollar may have passed its peak of strength, but it is unclear from which heights it will begin a steady decline. The USA economy is still stronger than the European one, and geopolitical tensions do not allow investors to give up on protective assets.
On December 13th is the US inflation report and on December 14th the FOMC will announce its interest rate decision. Investors are unlikely to intensify forex trading until this news. We expect EUR/USD to stay in the range of 1.04-1.05. Hence we will buy from the lower boundary and sell at the upper one.