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Disappointing US employment data has become a trap for Euro vs US Dollar Bears. The prospects of an economic slowdown and the possibility of a significant rate cut by the Federal Reserve have put the US dollar at risk. However, it has managed to find a way out of this situation. Let’s discuss this topic and develop a trading plan.
The article covers the following topics:
Key points and highlights
- The panic started and ended with the job market.
- Federal Reserve officials are unlikely to cut interest rates significantly.
- Donald Trump will continue to seek changes to Federal Reserve policies.
- The EUR/USD pair made a profit from selling at the 1.094 level.
USD Weekly Fundamental Forecast
Black Monday caused an adrenaline rush and panic attacks among investors who were desperately afraid of a recession and were demanding that the Federal Reserve cut interest rates dramatically. However, the most significant drop in unemployment claims in nearly a year provided a sense of reassurance and put an end to the forex market volatility. Euro vs US Dollar The husband settled down and began charting a different course.
The labor market was the catalyst for the initial decline and subsequent recovery. The sharp rise in the unemployment rate, which reached 4.3%, raised concerns about an impending recession. However, the underlying cause of the turnaround was clearly temporary layoffs in areas hardest hit by Hurricane Beryl. Thus, the sharp drop in unemployment claims in Texas was a major relief to investors.
Derivatives markets have reduced the probability of a 50 basis point Fed rate cut in September to 56%. At the height of the Black Monday crisis, the number exceeded 80%. In 2024, the total amount of monetary expansion is expected to be less than 100 basis points, a significant reduction from the roughly 150 basis points seen earlier in the week.
Expected Fed Rate Cuts
Source: Bloomberg.
Kansas City Fed President Jeffrey Schmid doesn’t think the labor market is weak. July’s numbers raise doubts about market stability, but many indicators point to strength. The official is unwilling to support cuts to the federal funds rate, given inflation’s distance from the 2% target. Richmond Fed President Thomas Barkin argues that the central bank still has time to assess whether the U.S. economy is returning to normal or declining too quickly for the Fed to take decisive action.
Expectations of a 50 basis point Fed rate cut in September are still a bit overblown. The labor market showed temporary weakness in July but is expected to recover in August. And there is no recession in sight, which is positive for those betting on lower interest rates. Euro vs US Dollar Another factor to consider is recent statements by Donald Trump about the influence of the US President on Federal Reserve decisions.
Republicans argue that the president should at least approve the Fed’s decisions. Trump claims he has proven financial success, has superior judgment, and has a stronger understanding of economic trends than Jerome Powell and his team. He also claims that the Fed has often made misguided decisions.
US Presidential Candidates Ratings
Source: Wall Street Journal.
The latest estimates suggest a 50-50 chance of either Donald Trump or Kamala Harris winning in November. But let’s assume the Republican candidate returns to the White House and ends the Fed’s independence. In that case, investors should brace for more aggressive rate cuts and a weaker U.S. dollar.
EUR/USD Weekly Trading Plan
However, Euro vs US Dollar The pair has reached a consolidation point, with the release of US inflation data expected to provide further guidance. Short trades Trading started at 1.094 and made profits, but in such a market it is necessary to set modest targets and focus on day trading until August 14.
EURUSD Real Time Price Chart
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