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Investors are returning to the idea that interest rates will remain high for a longer period, causing Treasury yields to increase and US stock indices and the stock market to decline. Euro against the US dollar. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for the Euro
The current economic cycle is unique, and investors should be prepared for frequent changes in sentiment in financial markets. The Fed usually raises interest rates very slowly, so as not to destroy the economy, but lowers them quickly if the economy needs a lifeline. This time, it’s the opposite: The derivatives market does not expect the Fed to ease monetary policy in the next three meetings, creating a solid foundation for higher Treasury yields and holding. Euro against the US dollar The bulls are “tied up.”
The central bank must fight not only inflation, but also the growing budget deficit, which has already become pro-inflationary. The Congressional Budget Office estimates that the budget deficit will rise from 5.6% to 6.1% of GDP in the next decade, while the national debt will skyrocket from $28 trillion to $48 trillion. Not surprisingly, neither Republicans nor Democrats want to abandon expansionary fiscal policy.
Everything has its cost. The Treasury is actively issuing bonds, but there are no buyers. The last three auctions have been met with weak demand. Investors demand higher returns, and they grow very quickly, causing US stock indices to fall and creating an ideal environment for investment. Euro against the US dollarslice.
Markets are increasingly convinced that the Fed will not rush to raise interest rates amid a strong economy and massive Fed spending. Its chances of survival at 5.25-5.5% in September are back above 50%, which is the estimate last seen in April when Euro against the US dollar Trading near 1.07.
Possible interest rate change by the Fed in September
Source: Wall Street Journal.
Markets are so obsessed with the Fed’s actions that they are ignoring the rise in consumer confidence in Germany and the acceleration of German inflation from 2.4% to 2.8% in May, which is higher than Bloomberg’s estimate of 2.7%. They say that the increase in consumer price growth depends on temporary effects, so the ECB will not change its plans to cut the deposit rate in June.
Inflation trends in Germany
Source: Bloomberg
Thus, the stimulant US fiscal policy, the unwillingness of investors to buy Treasury bonds at current interest rates, the continued strength of the US economy, and the Fed having to keep the federal funds rate at a fixed level, all create the perfect storm for the US economy. Euro against the US dollar. The major currency pair is experiencing very unfavorable conditions amid rising bond yields and an associated decline in stock indices. This indicates a deterioration in global risk appetite and supports the US dollar as a safe haven currency.
Weekly trading plan for EURUSD
Only a rise in unemployment claims and a larger-than-expected slowdown in personal consumption expenditures could slow the economy Euro against the US dollar Bear. If their opponents can bring prices back above 1.08, we can look for an occasion to buy. If they do not, the pair may fall to 1.07-1.073.
EURUSD price chart in real time mode
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