28.07.2022 09:39 PM
EURUSD wishful thinking

Financial markets clearly overdid it, reacting to Jerome Powell's announcement that the federal funds rate would reach a long-term neutral level of 2.5%. The very thing that does not stimulate, but does not constrain the economy. Investors considered the Fed's mission to slow inflation accomplished, and then only a modest tightening of monetary policy is required from the Central Bank. A sort of dovish shift that allowed EURUSD to soar above 1.02. In fact, everything was different. The bulls overdid it and very soon broke their foreheads.

The Fed chairman's speech at the end of the July FOMC meeting had nothing to do with "dovish" rhetoric. On the contrary, Jerome Powell advised paying attention to the forecasts of the Federal Open Market Committee, according to which, the federal funds rate should rise to 3.4% by the end of 2022 and to 3.8% in 2023. As for the September meeting, the Central Bank's verdict on how much to raise it, by 75.50 or 25 bps, will depend on the new data. There are several releases on inflation and employment ahead at once, so the Fed has room for maneuver.

Markets have taken wishful thinking. They are seriously counting on lower borrowing costs next year after bringing them up to 3.3% this year. The main argument in favor of this point of view is the recession in which the United States, judging by the leading indicator from the Atlanta Fed, is already in. It doesn't matter that Bloomberg's median forecast assumes GDP expansion in the second quarter by 0.4%. The fact could be worse, right?

Dynamics of US GDP

This image is no longer relevant

However, there is also an element of wishful thinking here. The latest statistics on inventories, durable goods orders, and the trade balance allowed Morgan Stanley, JP Morgan, and Goldman Sachs to raise estimates of gross domestic product. Thus, orders for durable goods in June increased by 1.9% after their growth by 0.8% MoM in May, and the US trade deficit is shrinking for the third month in a row. As a result, Morgan Stanley believes that in April-June, the US economy expanded by 1%, that is, there can be no question of any technical recession.

This image is no longer relevant

If the US labor market and GDP remain resilient after a 225 bps increase in the federal funds rate since the start of the monetary restriction cycle, why doesn't the Fed continue to act decisively? This circumstance, against the backdrop of the weakness of the European economy and the energy crisis that has enveloped the eurozone, can return the main currency pair to parity.

Technically, in the conditions of EURUSD consolidation on the daily chart, the complexity of trading increases dramatically. The return of quotes to the lower border of the channel 1.011–1.027 increases risks of a repeated assault of support at 1.01-1.011. Success in this event will allow us to talk about the restoration of the "bearish" trend and will allow forming short positions with targets at 1 and 0.985.

Marek Petkovich,
Chuyên gia phân tích của InstaForex
© 2007-2023
Euro vs US Dollar
Select timeframe
Start trade
Start trade
  • Grand Choice
    Contest by
    InstaForex always strives to help you
    fulfill your biggest dreams.
  • Tiền gửi lần truy cập
    Ký quỹ tài khoản của bạn với $3000 và nhận được $8000 nhiều hơn!
    Trong Tháng 3 chúng tôi xổ $8000 trong chiến dịch Chancy Deposit!
    Có được một cơ hội giành chiến thắng bằng việc ký quỹ $3000 vào một tài khoản giao dịch. Đáp ứng được điều kiện này, bạn trở thành một người tham gia chiến dịch.
  • Giao dịch khôn ngoan, thành công
    Nạp tiền vào tài khoản của bạn với ít nhất $ 500, đăng ký cuộc thi và có cơ hội giành được các thiết bị di động.
  • 100% tiền thưởng
    Cơ hội duy nhất của bạn để nhận 100% tiền thưởng khi gửi tiền
  • 55% Tiền thưởng
    Đăng ký tiền thưởng 55% cho mỗi lần gửi tiền của bạn
  • 30% tiền thưởng
    Nhận 30% tiền thưởng mỗi khi bạn nạp tiền vào tài khoản của mình

Recommended Stories

Heavy oil prices will rise

According to Bloomberg, PetroChina is launching a new refinery. Until recently, heavy crude oil traded at a significant discount compared to lighter grades. Now, producers of heavy grades

Irina Yanina 04:29 2023-03-31 UTC+2

EUR/USD. Germany's inflation growth caused a strong reaction

The release of statistics on Germany's inflation growth caused a strong reaction in the EUR/USD pair today. The fact that the report was published in the "green zone" makes

Irina Manzenko 17:42 2023-03-30 UTC+2

ECB monetary policy report

As I have had the opportunity to state more than once, a lot now depends on inflation and the monetary policy of central banks for both pairs. These

Chin Zhao 17:19 2023-03-30 UTC+2

XAU/USD: Strong bullish momentum remains

After yesterday's minor correction, the dollar index (DXY) is falling again today. As of writing, DXY futures were trading near 102.15, 60 pips below last week's close. The price

Jurij Tolin 15:05 2023-03-30 UTC+2

Gold at $2,000 an ounce

According to forecasts by the Dutch bank ING, in the fourth quarter of this year, gold could cost an average of $2,000 an ounce. They base their forecasts

Irina Yanina 14:38 2023-03-30 UTC+2

Markets may see a correction ahead of fresh US data

Risk appetite is increasing as authorities are trying their best to cushion the crisis that is happening to the US banking system. This led to the decrease of dollar demand

Pati Gani 14:15 2023-03-30 UTC+2

USD/CAD: Downward trend in full swing

USD/CAD is in a strong downward trend and has dropped almost 400 pips in less than a week. Last Friday, the loonie was in the area of the 38th figure

Irina Manzenko 14:00 2023-03-30 UTC+2

Bank of England says the UK banking system is in good shape

Pound is ready to storm the March highs, all thanks to the recent statements of Bank of England Governor Andrew Bailey. He said the central bank is going

Jakub Novak 13:23 2023-03-30 UTC+2

The US banking system needs to be put in order

Bullish potential in euro and pound is slowly coming to an end, so there may be a bearish correction soon. This does not come as a surprise because risk appetite

Jakub Novak 12:41 2023-03-30 UTC+2

GBP/USD. Overview for March 30. The pound and the euro continue to trade almost synchronously on an empty calendar.

On Wednesday, the GBP/USD currency pair spent nearly the entire day near the crucial Murray level of "6/8" (1.2329). The upward movement last time concluded around this level

Paolo Greco 10:21 2023-03-30 UTC+2
Không thể nói chuyện ngay bây giờ?
Đặt câu hỏi của bạn trong phần trò chuyện.