EUR/USD correction hampered by old problems
October 11, 2023 8:22 pmVideo
Latest News
- Weekly forecast based on simplified wave analysis for GBP/USD, AUD/USD, USD/CHF, EUR/JPY, AUD/JPY, and US dollar index on April 22, 2024
- Technical Analysis – GBPUSD tumbles to 5-month low April 22, 2024
- Weekly forecast based on simplified wave analysis for EUR/USD, USD/JPY, GBP/JPY, USD/CAD, NZD/USD, and Gold on April 22nd April 22, 2024
- Video market update for April 22, 2024 April 22, 2024
- Weekly Technical Outlook: 22/04/2024 – Dollar index, USDJPY, EURUSD April 22, 2024
- Market Comment – Risk appetite returns as geopolitical fears calm April 22, 2024
- Weekly Technical Outlook – Dollar index, USDJPY, EURUSD April 22, 2024
- Forex forecast 04/22/2024: EUR/USD, GBP/USD, USD/JPY and Bitcoin from Sebastian Seliga April 22, 2024
- USD/JPY: trading tips for beginners for European session on April 22 April 22, 2024
- Technical Analysis – EURUSD consolidates after decline pauses April 22, 2024
- GBP/USD: trading tips for beginners for European session on April 22 April 22, 2024
- EUR/USD: trading tips for beginners for European session on April 22 April 22, 2024
- Hot forecast for EUR//USD on April 22, 2024 April 22, 2024
- Technical Analysis – EURJPY rallies ahead of key market events April 22, 2024
- Trading plan for GBP/USD on April 22. Simple tips for beginners April 22, 2024
- Trading plan for EUR/USD on April 22. Simple tips for beginners April 22, 2024
- Forecast for EUR/USD on April 22, 2024 April 22, 2024
- Forecast for GBP/USD on April 22, 2024 April 22, 2024
- Forecast for AUD/USD on April 22, 2024 April 22, 2024
- Trading Signals for GOLD (XAU/USD) for April 19-22, 2024: sell below $2,395 (+2/8 Murray – overbought) April 19, 2024
The decline in U.S. Treasury bond yields creates an excellent opportunity for a bullish counterattack. However, the euro has several vulnerable points that restrain buyers’ offensive. Italian profligacy leads to increased political risks in the Old World, and the problems in the Eurozone’s economy have not disappeared.
The main drivers behind the EUR/USD peak from July levels are the divergence in economic growth between the U.S. and the Eurozone, as well as differences in the monetary policies of the Fed and the ECB. While the European Central Bank has hinted that the monetary tightening cycle is over, the FOMC’s September forecasts implied another rate hike for the federal funds. Nevertheless, in October, Federal Reserve officials started to talk about the lack of necessity to do so due to the rapid rally in U.S. Treasury bond yields. This deprived the dollar of a crucial advantage.
However, no one canceled the divergence in economic growth. The International Monetary Fund raised its GDP forecast for the U.S. in 2023 and 2024 to 2.1% and 1.5%, and lowered its estimates for the Eurozone to 0.7% and 1.2%. The IMF is not very optimistic about China either. According to this authoritative organization, China’s economy will expand by 5% this year and by 4.2% next year. This is less than what was expected in previous forecasts, which is bad news for the export-oriented currency bloc.
IMF Forecasts
Not very good news for the euro is also coming from Italy, where the government of Giorgia Meloni announced a larger budget deficit for 2024-2025, and EU requirements for this indicator will only be met by 2026. As a result, the yield spread between Italian and German bonds soared to 211 bps. According to a Bloomberg insider, an increase of more than 250 bps will force the ECB to intervene in the debt market. The interest rate differential for European country bonds is seen as a key indicator of political risk. An increase in this spread acts as a restraining factor for “bullish” attacks on EUR/USD.
Thus, if not for the weak Eurozone economy and the rising political risks in Europe, the main currency pair would be trading significantly higher. Its further dynamics will depend on the development of the armed conflict in Israel and the speed of reducing the chances of a rate hike in 2023. In a week, the probability of resuming the monetary restriction cycle dropped from 40% to 28%.
Market rate hike expectations
Israel’s invasion of Gaza will further push down Treasury bond yields and, consequently, weaken the U.S. dollar. Non-hawkish rhetoric of the FOMC’s September meeting minutes and a slowdown in American inflation could have the same effect.
Technically, the bulls’ counterattack continues on the EUR/USD daily chart. Buyers are slowly but surely moving towards the upper limit of the fair value range of 1.046-1.069. For now, we are holding onto long positions formed from 1.0575, and then we will consider reversing.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: