.jpg)
The sooner the Fed starts monetary easing, the worse it will be for EURUSD bears. Moreover, the European Central Bank is ready to wait until June. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Jerome Powell’s statement to Congress that the Fed was close to cutting rates amid Christine Lagarde’s hints that the ECB intends to wait until June turned on the green light for EURUSD bulls. If the US regulator makes the first move in May, and its European counterpart follows, buying the euro against the US dollar will be very reasonable.
At their March meeting, ECB officials kept the deposit rate at 4% and lowered inflation forecasts for 2024 from 2.7% to 2.3% and for 2025 from 2.1% to 2%. It looks like the Governing Council is preparing the markets for monetary easing. However, Christine Lagarde decided to surprise investors. She said market expectations were very close to the central bank’s outlook and that the ECB would receive important data to start making decisions in April and then June.
ECB forecasts for inflation and GDP
Source: Bloomberg.
Such rhetoric has led markets to rule out April from the list of candidates for the start of the European Central Bank’s monetary expansion. At the same time, lower inflation and GDP forecasts allowed derivatives to increase the expected scale of monetary easing. The derivatives market predicts a reduction in the deposit rate from 4% to 3% in 2024 by 100 bps. This is more than the Fed, which casts doubt on EURUSD uptrend recovery.
Market forecasts on the extent of ECB rate cuts
Source: Bloomberg.
However, the upcoming release of US employment data may change everything. A cooling of labor market indicators in February will increase the expected scale of the Fed’s monetary expansion, which, according to the derivatives, will shift the start date from June to May. As a result, the US dollar will continue to weaken against major world currencies.
On the contrary, another pleasant surprise from non-farm payrolls will confirm a new uptrend. It will also make it more likely that the Fed will not raise borrowing costs this year. In my opinion, such rumors are unfounded.
The main reason for the slowdown in US inflation is not only the recovery of supply chains but also rapid growth in productivity. First of all, based on artificial intelligence technologies. As a result, the economy remains strong, and PCE falls in the direction of the target. However, a strong economy requires higher rates than before. Therefore, the Fed’s monetary easing will not be as rapid as in Europe.
Weekly EURUSD trading plan
The US jobs report for February will likely change the balance of power in the main currency pair. However, traders should switch from short-term purchases above 1.088 to sales of EURUSD. Including, on the price rebound from resistance at 1.097, 1.1 and 1.1045.
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.
