Another US positive economic report should make the EURUSD sink, however, the pair has strengthened a little. Will the jobs report change the situation? Let us discuss the Forex outlook and make up a EURUSD trading plan.
US dollar fundamental forecast today
How can inflation slow down when the economy remains so hot? Investors are confused and continue selling off stocks and bonds. As a result, Treasury yields rose to their highest levels since 2007, and their correlation with the S&P 500 turned negative for the first time since March. If, for some reason, the economy is not cooling down, the Fed has a lot of work to do, and therefore the best solution is to stay away.
If the Fed’s monetary policy depends on the incoming data, then the economic reports confirmed the need to raise interest rates not only in July but also in September. The ADP private sector employment jumped 497,000 in June, the biggest increase since February 2022 and twice Bloomberg’s estimates. As a rule, the indicator expands more slowly than non-farm payrolls, so Friday’s US jobs report could be a real blockbuster.
The number of vacancies in May decreased from 10.3 million to 9.8 million, continuing to move away from the peak of 12 million that took place in March 2022. However, these figures are misleading. In fact, there are 1.6 vacancies per unemployed person. It was 1.2 before the pandemic, and the number of job offers needs to be reduced by another 2.8 million to return to this level. Over 15 months, the indicator has decreased by 2.2 million. The labor market is still very hot, which means the Fed can’t afford to complete the monetary tightening cycle.
Dallas Fed President Lorie Logan also spoke about this. In her opinion, it is important for the central bank to reach its goals. If the Fed loses ground in the fight to achieve price stability, it will have to do more to catch up. And the labor market is the only area that forces the Fed to go ahead. In June, the Services Purchasing Managers Index jumped 3.6 points to 53.9. This is the greatest growth since the beginning of the year.
Good news from the economy again turned bad for financial markets: stocks closed in the red, Treasury yields jumped to 16-year highs, and the chances of a federal funds rate hike to 5.75% rose to 42%. Against this background, the growth of EURUSD looks unnatural.
The euro strengthening resulted from an unexpected increase in manufacturing orders in Germany by 6.4% in May, which investors took as signs of economic improvement. The manufacturing sector, which has been pressing down the German economy, is now on the rise. However, according to HSBC, the data showed only a normalization of an exceptionally weak level rather than a reversal in the overall negative trend in demand.
EURUSD trading plan today
I suppose the EURUSD is not sinking because investors are unwilling to take active steps ahead of the US jobs report. If the report is strong, one might consider sell trades with targets of 1.0835 and 1.0805. Until the pair goes above 1.092, it will be relevant to sell.
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