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New US statistics indicate a slowdown in the economy. However, the Fed refuses to speculate on when it will cut interest rates. On the contrary, he is determined to keep interest rates high for a long time. Will this approach lead to stagnation? Let’s discuss this topic and develop a trading plan for the economy. Euro against the US dollar.
Weekly fundamental forecast for the US dollar
The slowdown in the US economy alone is not enough to weaken the US dollar. The key is for the Federal Open Market Committee (FOMC) to finally address the possibility of an imminent interest rate cut. However, FOMC officials are cautious, refraining from any urgency or commitment. When they hint at the possibility of tightening monetary policy,… Euro against the US dollar She had no choice but to land.
Michelle Bowman believes that rising immigration rates, significant fiscal stimulus, and deteriorating financial conditions increase the risk of an inflation rebound. In such a scenario, or if inflation stagnates, it is prepared to call for higher federal funds rates. On the other hand, Lisa Cook expects the need to ease monetary policy at some point, but the FOMC official refrains from specifying when that might happen.
Rumors have begun to spread in the market that the Fed is preparing for a hard landing by keeping interest rates at 5.5% and not indicating a specific timetable for monetary expansion amid the slowing economy and inflation. If a recession hits the country’s economy, borrowing costs must be reduced quickly. The most curious bets on options markets are that they will fall by 300 basis points in 9 months! This is well above the Federal Open Market Committee and market expectations.
Federal Funds Interest Rate Forecast
Source: Bloomberg.
If there is a downturn in the US economy in 2025, it will deal a severe blow to the US dollar. For now, the dollar is holding its ground, thanks to neutral and sometimes hawkish rhetoric from Fed officials, as well as rising political risks in Europe. Investors are concerned that the unexpected victory of the New Popular Front in the second round of the French parliamentary elections may be more damaging than the victory of the National Rally party, which is leading in the opinion polls.
The left-wing coalition wants to increase budget spending by 150 billion euros by 2027 to find the resources needed to fulfill promises to lower the retirement age from 64 to 60 and increase civil servant salaries by 10%. The left is determined to raise taxes on the rich and corporations and has no intention of reducing the deficit in line with EU demands.
The political drama in France is depriving the euro of sleep, and the rise in US stock indices is not helping this. Could it help if the word “divergence”, which is common in the currency market, spreads to the stock market? For four consecutive days, the euro has been in recession. Nasdaq And the Dow Jones The index moves in two opposite directions, the first driven by large technology companies led by… Nvidiawhich is not included in the latter.
US Stock Indices Performance
Source: Wall Street Journal.
EURUSD weekly trading plan
In the current economic environment, can stock indices serve as indicators of the health of the US economy and global risk appetite? No, it can’t. It is not surprising that Standard & Poor’s 500 The indicator often differs from Euro vs US Dollar Husband. A drop in the major currency pair below 1.07 will allow traders to enter into sell trades, adding to… The one that opened At 1.0735.
EURUSD price chart in real time mode
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