Market reaction to Fed rate hike

FOREX Fundamental analysis for EUR/USD on November 21, 2024When inflation in the United States remains above the Fed's target level, and Republicans are offering fiscal incentives and trade barriers, an early price increase looks quite natural.According to a Reuters poll, 85% of experts believe that the probability of increased inflationary pressures has increased. This factor contributes to the strengthening of the US dollar in forex currency trading. However, real market dynamics often go against forecasts, and this gives EUR/USD a chance to resist.The Fed and inflationExpectations of rising consumer prices lead the market to assume that the Fed may slow down the pace of monetary policy tightening or even suspend them. The US economy has been maintaining the federal funds rate at 5% and above for two years now. Fed representative Michelle Bowman points out that inflation is again becoming the main challenge for the regulator, and this takes the focus away from the labor market, whose data previously helped strengthen the pair to September highs.Reuters experts believe that in 2025, the Fed may cut the rate three times, bringing it to 3.75%. This is lower than the previous forecast, reflecting caution in the regulator's approach.The risks of Trump tradeRepublicans have gained control of the House of Representatives, but their advantage is minimal, which will make it difficult for Donald Trump to implement large-scale fiscal incentives. Even with the adoption of new initiatives, there is a time gap between their implementation and the impact on the economy.As for trade tariffs, their impact on inflation can be mitigated by strengthening the dollar, deregulation of the energy sector and increased oil production. However, this does not negate the possible pressure on the euro, especially against the background of the weakness of the European economy. The ECB, in its financial stability report, warns of the risk of a debt crisis and stresses that US protectionism and high interest rates could slow economic growth in the Eurozone.The Eurozone and trade tariffsThe Eurozone economy is particularly vulnerable to tariffs because it exports more goods to the United States than it imports. This makes the region dependent on foreign trade, increasing the risks for the euro.ConclusionDespite the temporary recovery of EUR/USD due to the reassessment of the impact of "Trump trade" on financial markets, fundamental factors — divergence in economic growth and weakness of the Eurozone — remain in force. The fight for the 1.0545 level continues. If the bears win, the pair may rush to the 1.035 mark.EUR/USD Technical analysisEUR/USD continues to trade in a short-term downtrend. Yesterday, the first sales target from resistance (A) 1.0619 - 1.0608 was reached - the level of 1.0557. The next target is the November 14th minimum in the 1.0496 area. If the pair consolidates below this minimum, the fall may continue to the "golden zone" of 1.0458 - 1.0446.If EUR/USD starts to rise during today's trading and yesterday's maximum is updated, then the resistance area (A) is likely to be broken through. In this case, the correction will continue to the resistance area (B) 1.0681 - .0664. After testing the area (B), it will be possible to look for an entry point into short positions again.

In the morning, the pound stabilized around 1.2655, showing mixed dynamics after a recent significant drop. This is due to the publication of important statistics on inflation in the UK, which may affect further actions of the Bank of England in the field of monetary policy.In October, the annual consumer price index rose from 1.7% to 2.3%, exceeding expectations of 2.2%. Monthly growth was 0.6% against the projected 0.5%. Core inflation, excluding food and energy, showed a more modest increase, from 3.2% to 3.3%. The producer price index also increased — from 1.4% to 1.7% in annual terms and from 0.0% to 0.3% for the month. The acceleration of inflation was complemented by a sharp increase in retail prices: from 2.7% to 3.4% year—on-year, and from -0.3% to 0.5% in a month.Such an increase in inflationary pressure is associated, in particular, with an increase in taxes. The head of the Bank of England, Andrew Bailey, had previously warned that businesses could offset the increase in national insurance contributions at the expense of consumers. This will increase the likelihood that the regulator will refrain from changing the rate in December and slow down monetary policy easing next year.The situation in the USJeffrey Schmid, President of the Federal Reserve Bank of Kansas City, noted that the beginning of the monetary restriction cycle demonstrates confidence in reducing inflation to the target 2% with a balanced state of the labor and commodity markets. However, he warned that rising government debt could force the Central Bank to keep rates high for a long period to control inflation. At the same time, Schmid avoided commenting on a possible 25 basis point rate cut in December.Today, market participants are focused on unemployment data. It is expected that the number of initial applications for benefits will grow from 217 thousand to 220 thousand, and the number of repeat applications will remain about 1.873 million.Technical analysis for GBP/USD for todayThe Bollinger Band indicator on the daily chart indicates a decline.The MACD indicator is trying to form a buy signal.Stochastic is showing steady growth, being in the central zone, which suggests a "bullish" potential in the near future.Trading recommendationsWe plan to open short positions with a confident breakdown down to 1.2600 with a target of 1.2500. We set the stop loss at 1.2650.Purchases are possible at an upward breakout of 1.2700 with a target of 1.2800. In this case, we put the stop loss at 1.2650.

USD/JPY analysis on November 21, 2024During the Asian session, USD/JPY is consolidating near the level of 155.00, which is mainly facilitated by John Murphy's technical analysis factors, while fundamental conditions remain stable. After Donald Trump's victory in the presidential election, market participants are investing more actively in the US dollar, linking its policy with a possible increase in tariffs and an increase in inflationary risks. This may limit the pace of interest rate cuts by the Federal Reserve (Fed), as inflation is already starting to accelerate.The policy of the Bank of JapanThe Bank of Japan, on the contrary, remains cautious. Analysts estimate the probability of a 25 basis point rate hike at about 40%. Kazuo Ueda, the head of the regulator, confirmed his intention to adhere to a "hawkish" policy, which, according to him, will help avoid a sharp increase in inflation and support long-term economic growth. Ueda also noted that the American economy is likely to be able to achieve a "soft landing." However, tariff changes that may be introduced by the Trump administration are likely to create difficulties for manufacturers, which could lead to a downturn in the economy. Given this, the Bank of Japan is unlikely to decide on a further rate hike before next year.According to Ueda, core inflation in Japan is still below the 2.0% target, but it is expected to gradually increase, which will be facilitated by wage growth.Macroeconomic statistics of JapanThe latest data from Japan turned out to be mixed. Exports decreased by 3.1% year-on-year after falling by 1.7% a month earlier, which turned out to be worse than expected. Imports slowed from 1.8% to 0.4%, although analysts had predicted an even more noticeable decline. The trade deficit widened from -294.1 billion yen to -461.2 billion yen. Tomorrow, the market's attention will be focused on inflation data for October. The consumer price index excluding food is expected to slow from 2.4% to 2.2% year-on-year. In addition, business activity in the manufacturing sector and the service sector may adjust to 49.5 and 49.3 points, respectively.USD/JPY Technical analysis for todayThe Bollinger bands on the daily chart show growth, indicating mixed dynamics in the near termThe MACD indicator retains a weak sell signal.Stochastic has turned up and is now near the midline.Trading recommendationsSales will be relevant at the breakdown down to the level of 154.50. The nearest target is 152.50. We will set the stop loss at 155.50.Long positions when rebounding from the 154.50 level and breaking up the 155.50 mark. The target is 157.50. We will place the stop loss at 154.50.

On Wednesday, AUD/USD is adjusted within the framework of a downtrend and is currently trading at 0.6526. This is due to the strengthening of the Australian dollar against the background of positive economic data and the depreciation of the US currency.The recent minutes of the Reserve Bank of Australia (RBA) meeting showed that high inflation remains the main problem of the economy. Although the overall inflation rate is slowing due to lower fuel prices, core inflation continues to rise and is expected to return to the target range of 1-2% only by 2026. This is holding back GDP growth. The bank has kept its key rate at 4.35% and intends to adhere to a restraining monetary policy until economic conditions improve. The regulator allows a reduction in rates only if there is a steady decline in consumer activity and a noticeable deterioration in the labor market situation.The US dollar index is trading at 106.10. His position is influenced by weak statistics on the real estate market. In October, the number of construction permits issued decreased from 1.425 million to 1.416 million, falling short of forecasts of 1.440 million. Also, the volume of new construction decreased by 3.1%, to 1.311 million units, with expectations of 1.340 million.AUD/USD Technical Analysis for todayThe AUD/USD pair is correcting near the support line within the framework of the "expanding formation" model with dynamic boundaries of 0.6980–0.6320.The EMA lines on the alligator are directed downwards, maintaining a stable distance from the signal line.The histogram of the awesome oscillator indicator is in the negative zone, but the sell signal is weakening.Open short positions after the price is fixed below the level of 0.6490 with a target of 0.6400. Let's set the stop loss at 0.6540.Purchases after the pair's steady growth above the 0.6560 level with a target of 0.6670. We will place the stop loss at 0.6520.

FOREX Fundamental analysis for EUR/USD on November 20, 2024The momentum of the "Trump trade" is weakening, and the growth of geopolitical tensions in Eastern Europe is helping to restore the position of EUR/USD.The rapid fall of the euro against the US dollar after the presidential election turned out to be excessive, and by the end of autumn, investors are beginning to show caution.As a result, the steady uptrend of the dollar is facing new challenges.Features of the current situationThe traditional attributes of "Trump trading" - the growth of stock indexes and treasury bond yields, and with them the correlation of currencies — are failing. The escalation of the conflict in Eastern Europe, including the use of American weapons by Ukraine and Russia's revision of its nuclear doctrine, is forcing investors to look for "safe havens". This led to lower bond rates and reduced pressure on the euro. If the threat of a nuclear strike remains only at the level of rhetoric, the situation in the markets is likely to stabilize.And, although Fed Chairman Jerome Powell claims that the election results will not affect monetary policy, history shows the opposite. After Trump's victory in 2016, the Fed began to take into account possible fiscal incentives, which prompted the Fed to tighten monetary policy.Forecasts for DecemberThe probability of a Fed rate cut in December is falling and reached 59.1% against 80% after the publication of inflation data.The European Central Bank (ECB), on the contrary, may go for easing. The chances of reducing the deposit rate by 25 basis points are 77%, and the probability of a more decisive step by 50 basis points is 23%. The head of the Bank of Italy, Fabio Panetta, stressed that the current levels of inflation and weak domestic demand require a transition to a more lenient policy.Trade with ChinaThe decline in the effectiveness of Trump's protectionist policy is manifested in the growth of imports from China. In October, shipments from China to the United States increased by 13%, which is reminiscent of the situation in 2018, when the foreign trade deficit increased contrary to expectations of a reduction. This highlights the failures of protectionism in achieving its stated goals.ConclusionGeopolitical events may create a temporary pullback, but fundamental differences — the more active monetary policy of the Fed and the weakness of the ECB — continue to put pressure on EUR/USD. Without drastic changes, such as nuclear escalation, the long-term trend of the pair will remain downward, opening up opportunities for selling the pair with a target of $1,035.

NZD/USD analysis on November 19, 2024On Tuesday, the NZD/USD is trading near the 0.5890 mark, due to positive economic data from New Zealand and the depreciation of the US dollar.The index of selling prices of New Zealand producers increased from 1.1% to 1.5%, and purchasing prices — from 1.4% to 1.9%. In addition, prices for capital goods rose (+0.1%). The only negative indicator was the price index for agricultural expenses, which lost 0.2%, but even this may be a positive signal due to a reduction in equipment and raw materials costs in the agricultural sector.The US dollar index continues to lose ground and reached 106.10. The reason for the decline is the uncertainty caused by the plans of President Donald Trump. His import tariff strategy and tax reduction programs funded by higher government debt could accelerate consumer price growth. This, in turn, will force the Fed to reconsider monetary policy, which is causing alarm among investors.Data on the volume of new home construction in the United States for October is expected to be published today. Analysts predict a decrease from 1.354 million to 1.340 million, which corresponds to a negative trend.Technical analysis for NZD/USD for todayThe NZD/USD pair is moving within the "expanding formation" model with boundaries of 0.6460–0.5800.Indicators confirm the downward trend. The EMA lines on the alligator are moving away from the signal line, which strengthens the sell signal.The histogram of the awesome oscillator indicator is in the sales zone, forming correction bars below the transition level.After breaking down the 0.5850 level, we open sales with a target of 0.5730. Let's set the stop loss at 0.5900.If the pair grows above 0.5930, long positions with a target of 0.6060 will be relevant. We place the stop loss at 0.5880.

USD/CAD analysis on November 19, 2024In Tuesday morning trading, USD/CAD shows a recovery after the decline at the beginning of the week, which did not allow it to gain a foothold at the highs of May 2020.On Friday, the US dollar came under pressure due to retail sales data. In October, the indicator decreased from 0.8% to 0.4%, which turned out to be higher than the predicted drop to 0.3%. However, excluding cars, it fell more significantly — from 1.0% to 0.1%, against the expected 0.3%. Industrial production also declined, but less sharply than before: from -0.5% to -0.3%. At the same time, the Canadian economy has shown improvement. Wholesale sales in September increased from -0.9% to 0.8%, almost matching expectations (0.9%), and production sales decreased from -1.3% to -0.5%. Yesterday's data also turned out to be positive: the volume of house construction increased from 223.4 thousand to 240.8 thousand in October, exceeding forecasts of 239 thousand.Today, investors' attention is focused on inflation data in Canada, which will be published at 15:30 (GMT+2). In October, the consumer price index is expected to rise from 1.6% to 1.9% in annual terms and from -0.4% to 0.3% on a monthly basis. However, the general trend of inflation remains downward. Last month, the decline in gasoline prices due to cheaper oil to $ 65 per barrel became a key factor, and experts believe that a similar trend could have continued, despite a temporary increase in oil prices to $ 75 per barrel. BMO Capital Markets forecasts that core inflation will reach 2.4–2.5%. Higher taxes may increase the cost of housing, but this is offset by lower mortgage costs due to the interest rate cut by the Bank of Canada in October. Another 25 basis point rate cut is expected at the December 11 meeting.USD/CAD Technical analysis for todayOn the daily chart, the Bollinger band indicator continues to expand, indicating the possibility of price growth, but the MACD indicator shows a downward reversal (the histogram tends to fall below the signal line). Stochastic, having left the overbought zone, confirms the likelihood of a downtrend in the short term.After breaking down the 1.4000 level, we open short positions with a target of 1.3908. We put the stop loss at 1.4050.In case of a rebound of the pair from the 1.4000 level and a breakdown up to 1.4050, we open purchases with a target of 1.4145. We will place the stop loss at 1.4000.

FOREX Fundamental analysis for EUR/USD on November 19, 2024Forex currency trading is largely based on history. Investors, after Donald Trump's victory in the presidential election, are actively repeating the 2016 scenario, again betting on the US dollar. As it was 8 years ago, the greenback is rapidly strengthening. However, following the results of Trump's first term, the dollar index fell by 10%, mainly due to the pandemic. But there was another factor – fears that China, protesting against the imposition of customs tariffs, would begin to get rid of American treasury bonds. And so, in the third quarter of 2024, it becomes a reality.In July-September, the two largest holders of treasuries, Japan and China, significantly reduced their holdings of treasuries. Japan sold securities for a record $61.9 billion, and China for $51.3 billion, which was the second largest reduction in history.Japan's actions can be explained by currency intervention to support the yen, but China's steps look like a warning signal. In late 2017 and early 2018, the dollar was losing ground, despite the increase in the yield of treasuries. Back then, it was said that China was selling bonds in retaliation for the duties. However, Washington quickly proved that these weapons are not so dangerous. The rising yield of treasuries is hitting the global economy, including China, and the dollar soon regained its position. Its further decline in 2020 was explained by the Fed's monetary incentives.The return of the old pattern alarmed the EUR/USD bears, prompting them to take profits on short positions. European exports to the United States are likely to grow in anticipation of new duties. In September, exports from the EU to America increased by 8.9%, as companies rushed to strengthen supplies.Despite the recent EUR/USD rebound, the pair's fundamental problems remain. Even without the new duties, the Eurozone expects GDP growth to slow to 1.45% by 2029 due to an aging population and low productivity. At the same time, US economic growth is projected at 2.29%. American companies continue to outperform European competitors, and Goldman Sachs notes three key factors supporting the dollar: high tariffs, a dynamic economy and strong demand for assets.Thus, the recent strengthening of the euro is only a short—term correction. If the pair fights off the resistance levels of 1.061–1.0625 or 1.068–1.07, or returns below 1.0545, then we get a good opportunity to form short positions.