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Ahead of the US inflation report, the EURUSD was jumping up and down. Investors are worried, as there is a lot at stake. Let us discuss the Forex outlook and make up a trading plan.
Fundamental Euro Forecast Today
Ahead of the US inflation report, the EURUSD was rallying. If consumer prices actually slowed, it would be a different matter. However, the euro bulls’ attempt to push the price up to 1.09 seemed reckless. The result for the euro turned out to be expected. The regional currency burned. Could it have been otherwise?
A five-day rally in EURUSD over the last six trading days would look strange, to say the least. The US jobs market is strong, and the economy is too hot for the Fed to be happy with. This, coupled with impressive growth in commodities, increases the risks of a return of high inflation. The situation could be the same as in the 1970s when a premature declaration of victory over high prices turned into a double-dip recession.
Will the Fed cut rates at all in 2024? The question remains open. Atlanta Fed President Raphael Bostic said he voted for one act of monetary expansion in March but is willing to reconsider and abandon monetary easing if the jobs market and the US economy remain strong.
Dynamics and forecasts for Fed’s rate
Source: Bloomberg.
CME derivatives give a 50% chance of a federal funds rate cut in June and a 65-basis-point drop in 2024. That’s less than the FOMC’s March forecasts. However, what are dots? This is a statement based on “if” a while ago. The Fed will cut rates three times this year if inflation and the economy remain at certain levels. However, the current situation doesn’t meet the needed conditions.
The rise of EURUSD to 1.09 looked even more illogical against the backdrop of the forward market’s estimates of the scale of the ECB’s monetary expansion of 85 basis points in 2024. This means that investors expect more cuts in borrowing costs from the European Central Bank than from the Fed. Moreover, the ECB’s first rate cut may happen as early as April 11. It doesn’t seem wise to buy the euro.
Dynamics of expected scale of ECB and Fed monetary easings
Source: Bloomberg.
It is not always profitable to follow the crowd. If it were not for a soon-to-be-released US inflation report, EURUSD could be safely sold on growth. However, when monetary policy is data-driven, actual CPI readings can rock the boat in either direction. It’s no wonder the market is so nervous on the eve of an important event.
EURUSD trading plan today
Atlanta Fed President Raphael Bostic will welcome figures that are close to forecasts. However, he prefers to pay attention to details. During previous releases, investors tried to calculate PCE based on CPI. I don’t think they will give up this idea now. In any case, strong data on US inflation for March is a strong argument in favor of selling EURUSD in the direction of 1.08 and 1.07. One could enter shorts when the price breaks out the support at 1.0845. If actual inflation turns out to be lower than forecasts, the euro bulls will go ahead.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
