ADS
ADS

[ad_1]

ADS

Previously, Fed officials deliberately did not discuss the end of the monetary restriction cycle, fearing to cause a dovish reversal in market rates. Now they have changed their mind. How does EURUSD react? Let’s discuss this topic and make up a trading plan.

Weekly US dollar fundamental forecast

Is the Fed responsible for soaring Treasury yields? Or were the excessively inflated budget deficits and colossal issues by the Treasury the reasons? According to FOMC member Lorie Logan, the increase in the risk premium that investors require when buying bonds contributed 50% to the rise in debt market rates. The Fed is trying to lay down part of the responsibility, which results in a correction in EURUSD.

ADS

On the one hand, an increase in Treasury yields is good news for the central bank. In such a situation, financial conditions tighten, which cools the economy and inflation. On the other hand, when debt rates rise too quickly, these processes accelerate. As a result, a recession may begin in the United States. Not surprisingly, a growing number of FOMC officials say the rally in Treasury yields reduces the need for further increases in the fed funds rate. Following Mary Daly, Lorie Logan, and Philip Jefferson, this version was supported by Neel Kashkari.

Atlanta Fed President Raphael Bostic doesn’t think the central bank should raise borrowing costs. This stance by Fed officials further reduced the chances of resuming the monetary restriction cycle in 2023, which allowed EURUSD to finish the fifth day in a row in the green zone.

Dynamics of Fed rate hike possibility

  

Source: Wall Street Journal.

The IMF, which improved its forecast for the US economy, upset the EURUSD bulls. According to the IMF, US GDP will expand by 2.1% in 2023 and 1.5% in 2024, which is 0.3 and 0.5 pps higher than previous estimates, respectively. In contrast, forecasts for eurozone GDP were cut by 0.2 pps to 0.7% this year and by 0.3 pps to 1.2% next year. IMF reminded many in the market about such a trump card of EURUSD bears as divergence in economic growth.

ADS

However, now the markets are focused on the idea of lowering Treasury yields. This is facilitated by both geopolitics and the Fed’s hints at the end of the monetary tightening cycle. At the same time, buyers of Treasuries and the euro have new arguments. In particular, PPI and CPI may slow down more than Bloomberg experts predict. Wilmington Trust cites dwindling household savings and slowing wage growth as the main reasons for the inflation slowdown.

Weekly EURUSD trading plan

Signals about the end of the monetary restriction cycle could also push Treasury yields lower. Some investors saw in the FOMC forecasts an additional increase in the Fed funds rate in 2023. If the consensus turns out to be more dovish, then Treasury yields will fall, and the EURUSD rollback will continue. The PPI slowdown and the neutral minutes of the September Fed meeting will allow us to hold long trades entered at 1.0585.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Rate this article:

{{value}} ( {{count}} {{title}} )

ADS

fbq('init', '485658252430217'); fbq('init', '616406046821517'); fbq('init', '484102613609232'); fbq('init', '1174337663194386'); fbq('init', '5751422914969157'); fbq('init', '3053457171622926'); fbq('init', '5661666490553367'); fbq('init', '714104397005339'); fbq('init', '844646639982108'); fbq('init', '2663733047102697'); fbq('init', '3277453659234158'); fbq('init', '1542460372924361'); fbq('init', '598142765238607'); fbq('init', '2139588299564725'); fbq('init', '1933045190406222'); fbq('init', '124920274043140'); fbq('init', '723845889053014'); fbq('init', '1587631745101761'); fbq('init', '1238408650167334'); fbq('init', '690860355911757'); fbq('init', '193723813127479'); fbq('trackCustom', 'PageView'); console.log('PageView');

[ad_2]

Source link

ADS

Leave a Reply

Your email address will not be published. Required fields are marked *