FOREX Fundamental analysis for EURUSD on May 17 2023
Investors again turn to dollar as a reliable defensive asset, as risks of recession in U.S. economy are increasing, the idea of dovish U-turn of the Fed does not look very convincing, and besides the threat of default looms on the horizon. How can one not think of the greenback?
According to the MLIV Pulse survey, 637 professional investors consider the dollar to be the most attractive asset in case of default among other forex currency indices. The greenback is second only to treasuries, bitcoin and gold. 60% of respondents believe the risks of default are higher now than in 2011, although few expect it to actually materialize.
In addition, a recession in the US, if it does happen, will be mild and shallow. At least that's what 2/3 of 251 BofA asset managers with total accounts of $666 billion believe. FOMC members Rafael Bostic and Austan Goolsby say the economic downturn will be avoided.
Yesterday's US retail sales report also moved the U.S. economy away from recession. The figure rose 0.4% (m/m) and 1.6% (y/y). Consumers are still strong, albeit a bit cautious in buying.
At the same time the single currency is being undermined by the Chinese statistics that dashed hopes for a quick recovery of the Middle Kingdom economy. Earlier investors had predicted the US recession against the background of the Eurozone economy growth supported by China recovering after the pandemic, in May it became clear that the US economy was not as bad as they thought, but the situation with the other components of the equation was just not good.
Moreover, strong US macro-reporting allows FOMC members to talk about continuing the rate hike cycle. On the futures market, the probability of monetary restriction in June rose to 22%.
I believe that the downward movement of EUR/USD will continue and if we break the support at 1.0855 we will build short positions aiming at 1.076.