The dollar had barely recovered from the shocks caused by the slowdown in U.S. consumer prices in March from 6% to 5% when it was hit by another blow. Producer prices fell by 0.5% on a monthly basis, which was below all Bloomberg expert estimates. The annual growth was 2.7%, the slowest in two years. Inflation continues to slow down, allowing the Federal Reserve to put an end to the tightening of monetary policy: a perfect reason to buy EURUSD.
U.S. Producer Price Trends
In addition to the nearing end of the Fed’s monetary tightening cycle, the favorable environment in the U.S. equity market also supports the euro against the dollar. Stocks seem to underestimate the risks of a decline in the U.S. economy, while bonds overestimate them. This drives down debt yields and further supports stock indices, global risk appetite and EURUSD bulls.
Essentially, stocks behave like the White House, which dismisses the idea of an imminent recession, pointing to a strong labor market and consumer spending. Bonds act like the Federal Reserve, whose latest forecasts include a slight economic downturn at the end of 2023. Either way, the dynamics of U.S. bond yields signal a slowdown in inflation expectations and, ultimately, a slowdown in inflation growth.
Bond Yields and Inflation in the United States
Stock indices are also supported by the fact that stocks are calming down in the absence of blatantly bad news and data.
Thus, the bulls in EURUSD are inspired by the proximity of the end of the Fed’s monetary tightening cycle and the favorable situation in the U.S. stock market for the euro. If we add to this the cracks in the U.S. economy, the rally of the main currency pair begins to look logical.
In any pair, there are always two currencies. The situation in Europe is different. The head of the Bank of France, Francois Villeroy de Galhau, speaks of entrenched high inflation. Such rhetoric suggests that the ECB is likely to maintain its determination in the fight against record high prices and continue raising deposit rates. The lagging monetary restriction cycle in the Old World compared to the New World is a key “bullish” driver for EURUSD.
Add to this the undervaluation of the Eurozone economy, and the picture becomes quite rosy for the euro. For example, the IMF forecasts that the Eurozone GDP will expand by 0.8% in 2023, which is half as much as its American counterpart. The chances that Europe will ultimately look better and the U.S. worse are quite high. They attract euro buyers.
Technically, the update of the February high activated the harmonic trading pattern AB=CD on the EURUSD daily chart. We have long identified the target of the upward movement at 1.1335 and regularly form long positions in the euro against the U.S. dollar. We will continue to do so. If the “buy and hold” tactic brings results, why abandon it?
The material has been provided by InstaForex Company – www.instaforex.com
The dollar had barely recovered from the shocks caused by the slowdown in U.S. consumer prices in March from 6% to 5% when it was hit by another blow. Producer prices fell by 0.5% on a monthly basis, which was below all Bloomberg expert estimates. The annual growth was 2.7%, the slowest in two years. Inflation continues to slow down, allowing the Federal Reserve to put an end to the tightening of monetary policy: a perfect reason to buy EURUSD.
U.S. Producer Price Trends
In addition to the nearing end of the Fed’s monetary tightening cycle, the favorable environment in the U.S. equity market also supports the euro against the dollar. Stocks seem to underestimate the risks of a decline in the U.S. economy, while bonds overestimate them. This drives down debt yields and further supports stock indices, global risk appetite and EURUSD bulls.
Essentially, stocks behave like the White House, which dismisses the idea of an imminent recession, pointing to a strong labor market and consumer spending. Bonds act like the Federal Reserve, whose latest forecasts include a slight economic downturn at the end of 2023. Either way, the dynamics of U.S. bond yields signal a slowdown in inflation expectations and, ultimately, a slowdown in inflation growth.
Bond Yields and Inflation in the United States
Stock indices are also supported by the fact that stocks are calming down in the absence of blatantly bad news and data.
Thus, the bulls in EURUSD are inspired by the proximity of the end of the Fed’s monetary tightening cycle and the favorable situation in the U.S. stock market for the euro. If we add to this the cracks in the U.S. economy, the rally of the main currency pair begins to look logical.
In any pair, there are always two currencies. The situation in Europe is different. The head of the Bank of France, Francois Villeroy de Galhau, speaks of entrenched high inflation. Such rhetoric suggests that the ECB is likely to maintain its determination in the fight against record high prices and continue raising deposit rates. The lagging monetary restriction cycle in the Old World compared to the New World is a key “bullish” driver for EURUSD.
Add to this the undervaluation of the Eurozone economy, and the picture becomes quite rosy for the euro. For example, the IMF forecasts that the Eurozone GDP will expand by 0.8% in 2023, which is half as much as its American counterpart. The chances that Europe will ultimately look better and the U.S. worse are quite high. They attract euro buyers.
Technically, the update of the February high activated the harmonic trading pattern AB=CD on the EURUSD daily chart. We have long identified the target of the upward movement at 1.1335 and regularly form long positions in the euro against the U.S. dollar. We will continue to do so. If the “buy and hold” tactic brings results, why abandon it?
The material has been provided by InstaForex Company – www.instaforex.com
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