Forex Fundamental Analysis for EURUSD on December 6, 2022
The Fed can meet the inflation target in two ways. The first is to quickly drive the interest rate above 5% and then begin easing financial conditions just as quickly, or the second is to conduct unhurried acts of monetary restriction, carefully analyzing the effect of the measures taken.
Jerome Powell and his colleagues have chosen the second path, but the strong macroeconomic statistics of recent days may change their decision.
Financial markets assess the Fed's work according to their market criteria and it is often investors' expectations that change the dynamics of assets, break trading strategies and cause losses for traders, who believed in the exclusivity of fundamental analysis. Currently, traders and investors believe that the US regulator will bring the rate to 5%, and only in a few months will start to reduce it. Perhaps, investors' opinion is influenced by recession risks, as the yield curve has been signaling an economic downturn for a long time.
At the same time, US economic indicators cast doubt on the likelihood of a recession, which means the Fed has no reason to cut rates. The central bank would benefit from keeping them at high levels longer in order to finally beat inflationary pressures.
Yesterday's services purchasing managers' index, which strengthened in November from 54.4 points to 56.5 points, sent stock indices back down and Treasury yields and the dollar back up.
Of course, the EURUSD trend change was also affected by long positions being closed by buyers around 1.06. Most likely, on the eve of the US inflation report and FOMC meeting few people wanted to open new positions. Forex trading is very volatile, so it is often better to wait away from the market than risk your deposit during unpredictable market movements.
I think that we are expecting a long consolidation in the EUR/USD pair, the boundaries of which the pair will determine soon. For now we will use a breakthrough of support at 1.0475 for short-term sales.