FOREX Fundamental Analysis for EURUSD on May 30, 2023
The problem with the US debt ceiling has again shaken the markets, as the bill has not yet been approved by Congress. Not all Republicans and Democrats were positive about the deal. Some of them believe that the amount of budget cuts is clearly insufficient, while others, on the contrary, claim too much change.
But it is unlikely that this debate will have much of an impact on the market. The agreement is reached and it's time to put the news in the archives. The volume of liquidity is another matter. The United States Treasury account has shrunk to $39 billion, which is the lowest volume in 6 years.
Dynamics of the US Treasury's cash balance
Within 7 months, the Treasury should be issuing $1.1 trillion in notes and bonds, which will move cash from the secondary market to the primary market and support treasury yields. Of course, in the medium to long term this could have a negative impact on bank deposits, but it will support the dollar in the short term. In this regard, there is a 60% chance of a Fed rate hike at the June meeting.
The Fed is once again between a hammer and anvil. If the monetary tightening cycle ends, inflation will quickly pick up and hurt the US economy. If monetary tightening continues, a recession could easily be triggered.
In addition, according to the ECB study, the tightening of financial conditions in the United States is affecting the European bond market, because commodity assets are denominated in dollars, and their appreciation makes it difficult for the Eurozone economy to grow. But the policy of the European Central Bank has almost no effect on the economy of the United States.
Talks about recession in Germany ruined any chance of a recovery of the EUR/USD uptrend. Now the pair's decline to 1.04 looks much more likely.
The US labor market report may change the positioning in forex trading. Weak statistics will bring back optimism for the euro buyers. But it is still far away from Friday, so we keep short positions towards 1.0665.