Dollar is confused. Forecast as of 04.08.2022

The EURUSD is trading in the range of 1.01-1.03. The global risk appetite supports the euro, and the Fed’s high rates strengthen the dollar. Let us discuss the Forex outlook and make up a trading plan.

Fundamental US dollar forecast today

The EURUSD is trading in the range, and the trend is not determined. Bond investors expect the Fed to continue tightening monetary policy aggressively. The Treasuries are sold off, and the yield is growing. Stocks have been up to a two-month high amid the expectations of a pause in the Fed’s monetary tightening cycle. Will the US jobs report help to clarify the situation?

The services PMI didn’t help. In July, the Purchasing Managers Index jumped to the highest level since April, and the growth in new orders was the fastest in the last four months. The stock market took this news as good, as it became another argument that there won’t be a recession soon. The bond market, on the contrary, suggests that if the US economy is strong enough to withstand higher rates, the Fed should continue aggressive monetary tightening.

In general, the US latest domestic data are better than expected, sending the economic surprise index up and confusing financial markets. The US GDP rate is slowing down, but it doesn’t look like a recession. If so, the inflation will likely remain high, and the Fed will have to take active steps to press it down.

The FOMC officials are willing to continue raising the rates. According to the Federal Reserve’s Neel Kashkari. The Fed remains laser-focused on fighting inflation, no matter the cost. The President of the Federal Reserve Bank of Richmond, Thomas Barkin, argues that the central bank has the opportunity to bring high prices under control, but in the process, the economy may face a recession. Fed will not panic, as it is a standard business cycle.

While St. Louis Federal Reserve President James Bullard continues claiming that the Fed should bring the federal funds rate to 4% in 2022 to strengthen the Fed’s reputation, Mary Daly, San Francisco Fed President, says it is reasonable to hike the rate by half a point in September. She believes that after reaching a peak in 2023, they will remain there from six to twelve months. This is not in line with the derivatives market’s bets, suggesting a rate cut next year.

EURUSD trading plan today

The US dollar still has the benefit of the Fed’s hawkish stance, but it has lost its another advantage, the demand for safe havens. However, 40 out of 56 experts polled by Reuters, the US dollar has not reached its peak. According to the consensus forecast, EURUSD will trade at 1.02, 1.05 and 1.08 in 3, 6 and 12 months. Meanwhile, the major currency pair is stuck in the trading range of 1.01-1.0 ahead of the US jobs report for July; the trend is unclear. I do not recommend entering any trades.

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