Forex. EUR/USD: U.S. inflation report caused turmoil in the markets

EUR/USD, currency, Forex. EUR/USD: U.S. inflation report caused turmoil in the markets

FOREX Fundamental Analysis for EUR/USD on October 14, 2022

After the U.S. inflation report was released, the Dow Jones index first lost 500 points and then quickly recovered to 800. Financial markets are very sensitive to the U.S. macroeconomic statistics, but no one expected that the release would bring losses to EUR/USD sellers.

Core inflation in the United States rose from 6.3% to 6.6%, which was higher than the forecast of 6.5%. The pair fell by 100 pips and was caught by the buyers, who created a fear so that the "bears" quickly took profits in the shorts.

Nevertheless, the dollar remains the safest defensive asset and the demand for it will decline only when the world economy recovers from the bottom. Even a slowdown with rising rates (for which there is actually no reason, on the contrary) will not be enough conditions for the greenback to turn around.

Citi recommends buying the dollar, and I think the analysts are right. We do not expect a global intervention, like in 1985, and it should be said that at that time the U.S. itself participated in the operation. Now the decline of the dollar is not beneficial to the Fed. Why else would the regulator raise rates?

I think the greenback will continue to strengthen for another 6-9 months. The Fed has not finished its work, and the market is going against it again. We know where this will lead. We continue to sell EUR/USD with the nearest target at 0.95.


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EUR/USD: buy euros and remember the dollar
EUR/USD, currency, EUR/USD: buy euros and remember the dollar FOREX Fundamental analysis for EUR/USD on May 28, 2024EUR/USD sellers hoped that the earlier easing of the ECB's monetary policy compared to the Fed and its significant scale would create a significant advantage for the dollar. However, Philip Lane, the ECB's chief economist, thinks otherwise. In his opinion, a significant weakening of the euro is necessary to accelerate inflation in the Eurozone, which is unlikely due to the narrowing of the gap in economic growth between the United States and the Euro Bloc. This statement caused confusion in the pro-dollar camp.Last week, slowing inflation and disappointing retail sales data turned asset managers and hedge funds away from the dollar. Their combined net long position on the US dollar against major world currencies of $2.02 billion was transformed into net shorts of $5.36 billion. Commonwealth Bank of Australia predicts that these positions will increase as the date of the first Fed rate cut approachesInterestingly, the largest capital inflows from leaving the dollar are directed to the pound and the euro, which are pro–cyclical currencies that benefit from synchronizing the growth of the global economy and reducing the influence of the factor of American exceptionalism.Philip Lane's comments had a greater impact on positioning in forex currency trading than the slowdown in the German business climate according to the IFO, indicating that the cyclical bottom of the German economy will not be followed by an automatic strong recovery. And, even more important than the "dovish" rhetoric of the head of the Bank of France, Francois Villaroy de Galo, who does not rule out a further reduction in the deposit rate in July after the June expansion.Philip Lane noted that the slowdown in the Eurozone economy is due to the negative impact of the war in Ukraine and the energy crisis, which the United States did not feel. He believes that the rapid decline in European inflation to the target level of 2% indicates the effective work of the ECB. This calls into question the effectiveness of the Fed and is bad news for the EUR/USD bears.The ECB's further plans after the June rate cut will depend on the data. Lane said that if inflation starts to accelerate, monetary policy easing will be slower. In the context of the increase in consumer price growth in the Eurozone predicted by Bloomberg experts in May, this statement looks like a call for EUR/USD bulls to take action.Recently, the futures market was confident of three acts of ECB monetary expansion in 2024, now only two are expected. The divergence in the monetary policy of the Eurozone and the Fed is not so significant as to stop the EUR/USD rally. Our forex trading strategy is the same - we buy and increase long positions formed from the levels of 1,073 and 1,083. The goal remains the same – 1,108.
May 28, 2024 Read
EUR/USD: the European currency is becoming more attractive than the dollar
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May 27, 2024 Read
EUR/USD: dollar is rising, but the euro is catching up
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May 24, 2024 Read
EUR/USD: the European currency can recover quickly
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May 23, 2024 Read
EUR/USD: Fed's hawkish rhetoric prevents the euro from strengthening
EUR/USD, currency, EUR/USD: Fed\'s hawkish rhetoric prevents the euro from strengthening FOREX Fundamental analysis for EUR/USD on May 22, 2024The Fed was still able to convince financial platforms. Christopher Waller's words that it will take several months to start easing monetary policy, and during this time the US economy will not collapse, helped EUR/USD to remain stable, despite new S&P 500 records. The futures market reduced the estimated scale of the Fed's monetary expansion from 50 bps immediately after the publication of US inflation data for April to 40 bps. The US dollar began to regain lost ground.Christopher Waller called the latest CPI report satisfactory, but noted that 3-5 more reports will be needed before the rate cut begins at the end of this year or early next year. According to Goldman Sachs, the Fed will keep the cost of borrowing at a high level for a long period, which, against the background of easing the monetary policy of other leading Central Banks in the world, will allow the US dollar to maintain its strength in forex currency trading. Moreover, the inflation target set by the Federal Reserve can be achieved due to the weakening of competing currencies.The "hawkish" rhetoric of the FOMC representatives keeps EUR/USD in a state of consolidation. The euro, through the correlation of currencies and indices, supports the rapid rally of the S&P 500, indicating a high global appetite for risk, as well as signs of economic recovery in the Eurozone. The EU uses the strength of other economies to compensate for its own weaknesses. For example, the EU's foreign trade surplus with the United States has reached a record high, and the trade deficit with China has fallen to its lowest level in the last three years amid high demand in the largest economies of the world and Asia.EUR/USD buyers are taking confidence from the assumption that the divergence in monetary policy between the ECB and the Fed will not be as significant as expected. The futures market forecasts a reduction in the federal funds rate by 40 bps starting in September, and deposit rates by 65 bps starting in June. At the same time, the path of the European Central Bank is not predetermined. Christine Lagarde continues to hold the position that decisions will depend on the data. The head of the Bundesbank, Joachim Nagel, warns that the easing of monetary policy in July, following June, could undermine all the achievements of the ECB in the fight against inflation.Euro fans are in no hurry to attack, fearing "hawkish" comments from the minutes of the FOMC meeting on April 30 – May 1. At that time, the Fed did not have data on April employment and inflation figures, and the acceleration of CPI and PCE in the first quarter forced the Central Bank to be cautious.In such an environment, on the eve of the publication of an important document, you can try to implement a false breakdown strategy. If EUR/USD falls below the key support at 1.083, and then returns above this level to the range of short-term consolidation, then we will buy euros. Such "roller coasters" indicate the weakness of the "bears".
May 22, 2024 Read
EUR/USD: while the dollar is warmed by rumors, the euro is strengthening
EUR/USD, currency, EUR/USD: while the dollar is warmed by rumors, the euro is strengthening FOREX Fundamental analysis for EUR/USD on May 21, 2024When there are no important events in the economic calendar, you need to listen to the statements of the Fed representatives. They unanimously declare that a reduction in rates is not yet expected. At the same time, the stability of the US economy, albeit slowing down, and the threat of new trade wars support demand for the dollar and allow the EUR/USD bears to counterattack periodically.According to Fed Deputy Chairman Philip Jefferson, the latest inflation report looks encouraging. At the same time, the official noted that it is too early to talk about a long-term decline in CPI and PCE. According to him, the acceleration of inflation indicators in the first quarter raises doubts about the sustainability of the disinflationary process. According to the calculations of the Federal Reserve, the basic index of personal consumption expenditures in January-April increased by 4.1%, which is considered too high.Loretta Mester of the Federal Reserve Bank of Cleveland rejects her own idea of three acts of monetary expansion in 2024, calling it inappropriate. Rafael Bostic from Atlanta believes that rates need to be kept at a high level for longer than planned. Michael Barr, the Fed's deputy chairman for supervision, believes that it is necessary to give time to restraining monetary policy so that it shows its effectiveness."Hawkish" statements by representatives of the monetary authorities allowed Treasury yields to rise for the third day in a row after a three-week decline. This brought the EUR/USD sellers to their senses.But if FOMC officials were not impressed by the April CPI report, why should it radically change forex currency trading? We know that the Fed is talking about the need to keep the federal funds rate at 5.5% due to the fact that financial conditions have weakened to their lowest levels since the start of monetary policy tightening in 2022. This means that aggressive restriction does not have a proper impact on the economy and inflation.If the Fed starts talking about lowering rates, this could further worsen the situation and lead to the resumption of the cycle of monetary restriction. This, in turn, may end in a recession, as in the 1970s, when the victory over inflation was prematurely announced.Markets are able to assess the prospects, so the US presidential election and the possible resumption of trade wars remain a more serious threat to EUR/USD. Donald Trump promises to impose duties on all imports from China in order to finance tax reduction programs. According to estimates by the Peterson Institute, this will cost the United States 1.8% of GDP, even without taking into account retaliatory measures from China. Low-income Americans, whose income will decrease by an average of 3.5%, will suffer the most damage.For defensive assets such as the US dollar, a new round of trade wars is good news. However, while EUR/USD is trading above 1.083, the sentiment remains bullish, and an appropriate forex trading strategy should be followed. Only a decrease in the pair below this level will create conditions for sales in the short term.EUR/USD Technical analysisEUR/USD is trying to maintain an uptrend. However, at the moment the pair is trading in a downward correction. To find profitable inputs for purchases, you should wait for the asset to decline to key support areas. These are: 1.0811 - 1.0802 and 1.0769 - 1.0756. When forming long positions from these zones, the maximum of May 16 becomes the target for buyers.If the price is fixed above the extreme of May 16, then the next target of the "bulls" for the euro becomes the "golden" zone 1.0945 - 1.0937.
May 21, 2024 Read
Forex analysis and forecast for USD/JPY for today, May 20, 2024
USD/JPY, currency, Forex analysis and forecast for USD/JPY for today, May 20, 2024 USD/JPY is in a sideways movement near the level of 155.70. The bulls are trying to develop an upward movement that began at the end of last week, when the pair retreated from local lows on May 6.After the release of important statistics from the United States and speeches by FOMC representatives, market participants are trying to predict the timing of a possible reduction in interest rates by the Fed. The main scenario assumes two acts of monetary expansion of 25 basis points each in 2024. The cycle will start in September or November.On Wednesday, data on orders for engineering products in Japan for March, as well as statistics on imports and exports for April, will be published. Analysts predict an acceleration in exports from 7.3% to 11.1% and imports from -4.9% to 9.0%. The trade balance for April is expected to show a deficit of¥339.5 billion after a deficit of ¥366.5 billion in the previous month. According to a survey of leading economists conducted by Reuters, most expect Japan's consumer price index to decline from 2.6% to 2.2% year-on-year in April, which will be the lowest in the last three months, but still exceeds the Bank of Japan's target level of 2.0%. If these forecasts are justified against the background of a significant reduction in GDP in the first quarter, the regulator may reconsider plans to tighten monetary policy, up to the rejection of rate hikes this year.The Bollinger Band indicator on the daily chart shows a sideways movement. The MACD is declining, keeping the sell signal Stochastic turned up near the middle of the working rangeWe will form purchases after a confident breakdown up to the level of 156.00. The target will be 157.00. We will set the stop loss at 155.50.A rebound from the resistance of 156.00 and a subsequent breakdown down to 155.50 may be a signal to sell the pair with a target of 154.50. In this case, we will place the stop loss at 156.00.
May 20, 2024 Read
EUR/USD: ECB has more room for maneuver than the Fed
EUR/USD, currency, EUR/USD: ECB has more room for maneuver than the Fed FOREX Fundamental analysis for EUR/USD on May 20, 2024The big thing starts with the little things. The largest rivers originate from small springs, and the downward trend of the dollar begins with the April employment report in the United States. This release was an important indication of the slowdown in the economy. Inflation statistics have confirmed that the Fed will not be able to raise rates. The only question is, when will the Fed start reducing them? The answer to it is very important for EUR/USD buyers. However, in any case, the road will not be easy for the couple.Despite the slowdown, the US economy remains quite strong. This means that it takes time for the dollar to weaken. According to Societe Generale, EUR/USD may remain in some kind of consolidation range for a long time, but an uptrend is inevitable. The dollar has no strong arguments for strengthening, euro investors believe. However, this is not entirely true. The Fed's battle with inflation is not over yet, and prices may start to rise again. Trade wars, geopolitics and the US presidential election can increase the demand for the greenback as a protective asset. But in the short term, the dollar doesn't look good.Can the Fed officials change something in the dynamics of EUR/USD, talking about the need to keep the rate at 5.5% for a long time, or the minutes of the FOMC meeting from April 30 – May 1? At that moment, inflation was rising for the third month in a row, and there was no question of a slowdown in the economy. Fed officials cannot reason otherwise if financial conditions have fallen to their lowest levels since 2022, when they began raising rates.The Fed corrects its own mistake. In the first quarter, he talked about a loosening of monetary policy amid rising CPI and PCE, which improved financial conditions and made it more difficult to fight inflation. In May, it's time to adjust the course. However, the rhetoric of FOMC officials does not mean much in itself. The dollar index, which grew by 5% until mid-April, in May shows the first monthly decline since the beginning of the year, losing positions among the forex currency indices. Investors believe facts more than words. The slowdown in the US economy is more important to them than the statements of the Fed representatives.At the same time, positive signals continue to come from other countries. German GDP grew more than expected in the first quarter, and business optimism reached a two-year high. Slowing inflation in the US makes the ECB more flexible. If the US CPI had continued to grow, the ECB might have thought three times before cutting rates in June and immediately in July. But now this issue remains open, and decisions will depend on statistical data.The report on salaries in the Eurozone plays an important role. In the fourth quarter, s/p growth slowed from 4.7% to 4.5%. However, stabilization of the indicator at the same level or its growth will force the ECB to be more cautious. This will be a tailwind for EUR/USD and will allow you to hold long positions open from 1.073 and 1.0835.EUR/USD Technical analysisThe short-term upward trend of EUR/USD continues. Today, the pair is growing, approaching the maximum for May 16. If buyers can gain a foothold above the extreme, then the pair will go to the Golden Zone in the range of 1.0945 - 1.0937.It is better to consider entering into new purchases of EUR/USD after the pair's corrective decline to the supports of (A) 1.0811 - 1.0802 and (B) 1.0769 - 1.0756.The signal of a trend change followed by the formation of opening sales will be a breakdown and consolidation of the price below the support (B).
May 20, 2024 Read
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