empty
 
 

Forex Analysis & Reviews: The dollar gained experience
time 07.10.2022 11:01 PM
time Relevance up to, 04.11.2022 03:08 PM

Good decisions are made through experience. And experience arises as mistakes accumulate. Everyone is wrong. The Federal Reserve did this last year when it argued that high inflation was temporary. This is where the financial markets are expecting a dovish turn from the Fed. The central bank will not throw a lifeline to stocks, bonds, or the US economy. At the same time, the pace of tightening monetary policy looks so impressive that the risks of accidents arising from time to time in the financial markets are very high. And in times of panic, EURUSD bears feel like a fish out of water.

FOMC officials, including the respected New York Fed President John Williams, have repeatedly said that positive real rates are needed to bring inflation back to the 2% target. With the Fed projected by the end of the cycle of monetary restriction of the cost of borrowing at 4.6%, inflation must fall below this mark in order for the central bank to achieve a result. This requires a significant tightening of financial conditions, which is currently going faster than real US Treasury yields are rising.

Dynamics of financial conditions and real yields of US bonds

This image is no longer relevant

So the Fed has a clear plan. The question is whether the US economy can withstand such an aggressive cycle of monetary tightening. So far, judging by the data on business activity and other indicators, the US is coping. The same can be said about the labor market. An increase in employment outside the agricultural sector by 263,000 against 250,000 predicted by Bloomberg analysts and an unexpected decline in unemployment from 3.7% to 3.5% speak only about one thing. About stability. The Fed even with a 300 bps increase in borrowing costs failed to properly cool the labor market, which means that its job is far from done.

If CME derivatives were expecting a 125 bps increase in the federal funds rate before the important release, then after the September statistics, the figure could rise to 150 bps. Let me remind you that the aggressive tightening of the Fed's monetary policy is one of the three drivers for the strengthening of the US dollar to its highest level in 20 years. The other two are strong demand for safe-haven assets and American exceptionalism.

This image is no longer relevant

The US really looks better than the eurozone mired in the energy crisis and China weighed down by outbreaks of COVID-19. The IMF plans to lower its global economic growth forecasts, and the WTO has already done so. Usually, upward trends in the US dollar broke when the US GDP began to lose to its world counterpart, but so far this is out of the question.

Technically, on the EURUSD weekly chart, the trend could have reversed thanks to the Wolfe Wave pattern. At the same time, you need to understand that in order to reverse the trend, it requires the return of quotes above 1.05, and before that, now it's like before the moon. On the contrary, the formation of a pin bar gives grounds for short positions in the direction of 0.95 and 0.92.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2023
EURUSD
Euro vs US Dollar
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Start trade
Start trade

InstaForex分析评论将让您充分了解市场趋势! 作为InstaForex的客户,您将获得大量的免费服务以实现有效的交易。

  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $1000 more!
    In February we raffle $1000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Jerome Powell tried his best to support the dollar, but the market turned out to be stronger.

The European Central Bank will increase interest rates by 0.5 percent once more today, but investors will be more focused on any indications of how the cost of borrowing will

Jakub Novak 12:50 2023-02-02 UTC+2

EUR/USD. Overview for February 2, 2023

For the majority of the day on Wednesday, the EUR/USD currency pair was trading higher. Tradition dictates that we avoid discussing the outcomes of the Fed meeting and Jerome Powell's

Paolo Greco 11:35 2023-02-02 UTC+2

Bank of England forced to hike interest rates

Market players are expecting another surge in pound as the Bank of England is likely to raise interest rates today due to the persistently high inflation

Jakub Novak 10:23 2023-02-02 UTC+2

Aggressive Fed rate hike is ending

Euro rose above 1.1000 after the Fed signaled a change in their stance on monetary policy. Their statements during yesterday's meeting were more dovish compared to December, with interest rates

Jakub Novak 09:46 2023-02-02 UTC+2

EUR/USD. The Fed has not become the dollar's ally, despite Powell's hawkish attitude

The EUR/USD tested the resistance level of 1.1000, reacting to the outcome of the Fed's February meeting. The central bank did not become the dollar's ally, despite Powell's hawkish message

Irina Manzenko 05:40 2023-02-02 UTC+2

EUR/USD. Fed and ECB: waiting for a volatility storm

The fate of the EUR/USD pair is in the hands of the Federal Reserve and the European Central Bank. Based on the results of the current week, it will become

Irina Manzenko 22:51 2023-02-01 UTC+2

Markets are waiting for new landmarks, a strong increase in volatility is possible. Overview of USD, CAD, JPY

The main event of the day is the FOMC meeting. According to the CME futures market, the consensus is that the FOMC is going to raise the rate by 0.25%

Kuvat Raharjo 22:51 2023-02-01 UTC+2

Gold demand will continue to surge in 2023

World Gold Council says physical demand for gold surged in 2022 as the market saw record growth as compared to 8 years ago. In its Q4 gold demand trends report

Irina Yanina 20:04 2023-02-01 UTC+2

GBP/USD. Preview of the Bank of England meeting in February

The GBP/USD pair is awaiting the start of the regulator's first meeting of the year. The outcomes of the February meeting won't be in favor of the British currency

Irina Manzenko 16:52 2023-02-01 UTC+2

What will happen to the world's economies?

In its economic outlook update on Tuesday, the International Monetary Fund said it forecasts global economic growth of 2.9% this year and a recovery to 3.1% in 2024. Although growth

Irina Yanina 14:04 2023-02-01 UTC+2
现在无法通话?
提出您的问题,用 在线帮助.