A strong economy means a strong currency. And the US dollar has proven it again. At first, it weakened against the euro based on European PMI data, but then it recovered. Let’s talk about this topic and draw up a EURUSD trading plan.
Weekly US dollar fundamental forecast
The economic growth gap again supports the US dollar. While European Purchasing Managers’ Indexes are below the critical level of 50 for the eighth consecutive month, which suggests a recession, US services PMI soars to 52.9, its highest level since June. If anyone was betting on a EURUSD rally as a result of a narrowing gap in GDP growth, they have been wrong so far. It’s no surprise that the major currency pair has once again experienced high volatility, jumping up and down.
In fact, the European PMI is close to the forecasts of Bloomberg experts. This increased the likelihood that the ECB would cling to the idea of keeping the deposit rate at 4% at least until the summer, and at the time of the release of the statistics, it supported EURUSD. The derivatives market in recent days has reduced the estimated scale of monetary expansion from 1.50% to 1.30 % in 2024 and expects it to start in April or July, compared to earlier forecasts for March-April.
According to Bank of America, Christine Lagarde will repeat her recent statement that easing monetary policy in the summer would make sense. She and chief economist Philip Lane have repeatedly pointed to wages data as a trigger for changes in monetary policy. This data will be available in May.
Nonetheless, neither European economic data nor the ECB can influence the US dollar, which is stable due to PMI growth, expectations of strong US GDP data, and the Trump factor. According to Bloomberg experts, gross domestic product will slow from 4.9% to 2% in the fourth quarter. At first glance, this is a negative trend. However, if we take into account its acceleration from 0.7% in 2022 to 2.6% in 2023, as well as the fact that the US economy is growing much faster than the euro-area, the EURUSD bears’ enthusiasm looks logical.
Donald Trump is remembered as a supporter of the “America First” motto and a strong dollar. His protectionist policies proved disastrous for the Mexican peso, Chinese yuan, and the euro. The return of a Republican to the White House could be a major bearish driver for the EURUSD with a potential trade war on the horizon. At the same time, during the time of the 45th President of the United States, stock indices were the main measure of his success. Is it any wonder that the greenback and the S&P 500 are rallying simultaneously?
The US dollar supports a gradual reduction in the chances of the Fed starting monetary expansion in March from 80% to 41% and a reduction in the expected scale of monetary policy easing from 1.60% to 1.30%.
Weekly EURUSD trading plan
The stronger the US economic data, the less likely it is that the Fed will start cutting rates soon. In this scenario, the Treasury yield will rise, supporting the US dollar. Therefore, the GDP and PCE data may again push up the EURUSD volatility. At the same time, the strategy of selling on growth towards the upper limit of the consolidation range of 1.085-1.1 has been profitable so far. I still recommend selling on the price rise.
Myanfx-edu does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors.
Go to Register with LiteForex Platform
Financial Trading is not suitable for all investors & involved Risky. If you through with this link and trade we may earn some commission.
