There are too many negatives taken into account in the dollar exchange rate, so it will continue to surprise. Markets have long been betting on a recession in the US economy and a dovish turn by the Fed. Once it became clear that borrowing costs would at least remain at 5.5% for a long time, the bears were unstoppable. On the other hand, after 8 weeks of decline, it is difficult to hold on to profits. The desire to fix it grows like a snowball. This is what can explain resistance to negativity.
Good news keeps coming from the States. And they are doing this at a time when Europe is frankly weak. Following the disappointing statistics on German production orders, Germany’s fall was also disappointing. The eurozone’s leading economy expanded in only one of the previous five quarters. It was 0.3% less than before the start of hostilities in Ukraine. For comparison: the French counterpart grew by 1.4%, the Italian – by 1.7%, and the American – by 2.4%.
It is not surprising that in April-June I felt neither shaky nor shaky. It expanded by only 0.1%, not 0.3% as the first reading showed. The currency bloc is teetering on the brink of recession and stagflation, while the US is heading for a soft landing. How not to fall EUR/USD?
Dynamics of the European economy
According to Natixis, the weak economy should eventually lead to severe disinflation. Therefore, a further increase in the deposit rate is counterproductive. The ECB finds itself in a trap: if the currency bloc faces a downturn, it will have to greatly ease monetary policy. Therefore, the best decision now is to take a break in September. And the markets understand this very well: they estimate the chances of such an outcome at 35%.
As for the “hawkish” speeches of ECB representatives, they should not be taken to heart. The Governing Council is clearly concerned about the 8-week fall in the euro, which could accelerate inflation. In such a situation, verbal interventions are necessary.
The same is true for the Fed, which is heading for a soft landing. She sees strong data and wants the economy to cool as slowly as possible. To do this, it is necessary to instill in investors the idea of continuing the pause in monetary restriction. That’s why, even amid strong data on and , New York Fed President John Williams says monetary policy is in a good place.
Dynamics of claims for unemployment benefits in the USA
His colleague from Dallas, Lori Logan, isn’t sure she’s cooled down, but she thinks the current situation shouldn’t be pouring buckets of water on her like in the past. At the same time, the pause in September does not mean that the cycle of monetary restriction is over.
In my opinion, EUR/USD’s resistance to negativity increases the risks of a rollback against the backdrop of profit-taking on shorts. Therefore, fixing the pair above 1.072 may trigger a wave of short-term purchases. Don’t get carried away. Look for opportunities to switch to shorts as you grow.
2023-09-08 06:13:00
#dollar #pour #buckets #water #Investing.com
