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Exiting the EURUSD shorts ahead of the US jobs report, and the confidence of FOMC officials in three federal funds rate cuts encouraged the euro bulls to go ahead. Let’s discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Slowness does not mean giving up the previous plans. Cleveland Fed President Loretta Mester repeated Jerome Powell’s words that the Fed is in no hurry to cut rates but noted that three acts of monetary expansion in 2024 are a reasonable solution. Such rhetoric from the FOMC official, known for her hawkish views, inspired EURUSD bulls to go ahead following the publication of German inflation data.
If investors wanted to close the EURUSD short positions ahead of the US jobs report for March, they had no better opportunity than the publication of German consumer price data. In March, the CPI slowed from 2.7% to 2.3%, and core inflation — from 3.4% to 3.3% Y-o-Y — which, it would seem, should have pushed EURUSD even lower. Moreover, ING reported that prices will fall below 2% in the near future.
Dynamics of euro-area inflation
Source: Financial Times.
However, when everyone is buying the US dollar, hedge funds have a great opportunity to sell it against the euro and bring their positions back to normal ahead of the US jobs report. That’s what they did. In addition, EURUSD bulls were encouraged by rising German service sector inflation amid an increase in the minimum wage and a still strong labor market.
Thus, the euro’s rebound from $1.072 is technical, as little has changed fundamentally. Moreover, the rise in oil prices to a six-month high amid escalating geopolitical tensions in the Middle East and the growing risks of Donald Trump’s victory in the US presidential election should support the EURUSD downtrend.
Israeli airstrikes on Iran’s diplomatic corps in Syria increase the risks of involving Tehran, which has promised revenge, in the conflict and could, according to JP Morgan, provoke a Brent rally above $100 per barrel in the near future. The Bloomberg Commodity Index soared to its highest levels since November, making a strong case for a further acceleration in US inflation.
Furthermore, Donald Trump is leading Joe Biden in six of seven hesitating states. Trump promised to raise import tariffs for China to 60% and for the rest of the world to 10%. Bloomberg estimates that this will accelerate PCE to 3.7% by the end of 2025. At the moment, experts predict the indicator to slow down to 2.1%.
Ratings of US presidential candidates
Source: Wall Street Journal.
Weekly EURUSD trading plan
The higher inflation rises, the less likely it is that the Fed will cut the federal funds rate at least once in 2024. Although the FOMC officials talk about the three acts of monetary expansion, the central bank’s final verdicts depend on the data. The oil rally and the growing chances of Donald Trump returning to the White House, coupled with the Atlanta Fed’s leading indicator forecast for US GDP to expand by 2.8% in the first quarter, indicate that the US dollar will remain strong. I suggest selling the EURUSD on the rebound from resistances at 1.08, 1.082, and 1.0845.
Price chart of EURUSD in real time mode
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