The single European currency staggers in uncertainty. The EURUSD bulls try to go ahead amid the expected rise in the euro-area inflation, but the uncertainty around US stock indexes holds them back. Let us discuss the Forex outlook and make up a trading plan.
Fundamental Euro forecast today
The EURUSD bulls want to go ahead, but they are held back. Expectations of further acceleration of European inflation and lower forecasts for the federal funds rate by the derivatives market amid the pending recession in the US encourage the euro buyers. However, the uncertainty is a setback.
At the end of June, every good macroeconomic news is interpreted as bad news for the market. If the economic growth and inflation rate accelerate, the Fed will continue aggressive rate hikes, with will trigger an economic downturn as a result. Thus, a better-than-expected report on the US durable goods orders has pressed down the S&P 500, encouraging the EURUSD bears. The indicator has increased 0.7% M-o-M, having been positive over the past seven months out of eight. The US economy seems to be adjusting to the Fed’s aggressive monetary tightening.
However, JP Morgan claims that most of the increase in durable goods orders is due to higher prices. Goldman Sachs says that investors understand the likelihood of a recession. The bank expects to profit from the Fed’s dovish shift in the near future. Indeed, the latest US domestic data are more upsetting than encouraging, which cannot but affect the indications of the derivatives market.
CME derivatives, which previously expected the federal funds rate to rise to 4% by March 2023, lowered their forecasts to 3.6% at the end of June. At the same time, the chances of a 200-basis-point increase in borrowing costs by the end of 2022 fell from 74% to 52% during the week. Such a trend weakens the US dollar, as some of the buyers turn into sellers. However, the EURUSD bulls don’t seem to be much encouraged.
Still, the euro has some benefits. There are upcoming reports on consumer prices in euro-area member states and the total indicator in the region for June. Germany’s inflation should rise from 7.9% to 8%; the French indicator is expected to grow from 5.2% to 5.7%; and the Italian one – from 6.8% to 7.4%. The inflation surge could force the ECB to tighten monetary policy more aggressively. The markets tend to grow on the news, so the EURUSD rally ahead of the upcoming news releases is natural.
EURUSD trading plan for today
Furthermore, there will be soon held the ECB Forum on Central Banking in Sintra, where Mario Draghi in 2017 encouraged the euro bulls with his speech about monetary normalization. Nowadays, during reverse currency wars, Christine Lagarde’s hawkish stance would be appropriate. Nonetheless, the EURUSD bulls are staggering in uncertainty. In such an environment, I do not recommend entering any trades.