FOREX Fundamental analysis for EURUSD on May 16, 2023
Markets did not react to the statement of the US Treasury about the potential default, if the government does not take a decision on the limit of the national debt. The S&P has been fluctuating no more than 1% a day for 6 months, the longest session since 2019. But it's certainly too early to get complacent, as this all looks very much like the calm before the storm.
Black Rock warns of a surge in currency pair volatility even if Democrats and Republicans manage to reach an agreement on the national debt ceiling. There is an increase in short-term bill yields, which through currency correlations have not yet been fully reflected in the dynamics of risky assets. Westpac believes that the Swiss franc and Japanese yen will benefit, excluding the dollar from the list of potential defensive assets.
EURUSD so far has had little reaction to the U.S. sovereign debt problem and has been more attentive to the news from the Fed and the ECB. Most likely, investors are waiting in vain for a "dovish reversal" from the Fed, as FOMC members one after another have spoken in favor of raising rates. The day before, Thomas Barkin, head of the Federal Reserve Bank of Richmond, said that there is no reason to stop monetary restriction if inflation is at such a high level.
The Fed can certainly pause in tightening monetary policy to review the effectiveness of the measures taken as well as the ECB where they believe that monetary tightening will have its fullest effect only in 2024.
Members of the European Commission hold a similar view, predicting a decline in inflation to 5.8% in 2023 and 2.8% in 2024. They expect GDP growth of 1.1% in 2023, and 1.6% in the next year, which is better than the previous forecasts. The analysts do not mention recession, which is used by the buyers of the single currency.
20 out of 62 Reuters experts believe that the European Central Bank will not raise the rate in June while the rest of them forecast the continuation of the monetary restriction cycle of the European regulator down to 3.75% and even to 4.0%.
Today the U.S. retail sales report will be released. Bloomberg analysts expect a 0.7% decline. If the actual value is higher, the Fed is unlikely to move to easing monetary policy, which will allow EUR/USD to continue moving towards 1.076 and us to strengthen short positions.