Everyone got tired of USD. Forecast as of 07.11.2022

When everyone is into purchases, there is an excellent opportunity to enter sales. The strong US jobs report provided traders with such an opportunity. After a slight fall, the EURUSD pair rose sharply. Let’s discuss the topic and make up a trading plan.

Weekly US dollar fundamental forecast

The Fed isn’t sure if the federal funds rate hike will impact the economy with a time lag. No matter how aggressively the US central bank has tightened monetary policy, inflation continues to be around 40-year highs while the labor market remains stable. However, this did not help the US dollar to avoid a major shock. The reasons for this are not entirely clear.

October’s 261k job growth was well above Bloomberg’s forecast of +200k. Despite the indicator showing the worst dynamics since December 2020, it is still growing at a faster pace than before the pandemic. In 2019, the monthly increase was 169 thousand. Employers are actively hiring employees, and the labor market is not showing the signs of cooling that the Fed would like to see. While wages slowed from 5% to 4.7% YoY, their monthly growth accelerated.

The report is strong, and initially, the market reacted correctly. Treasury yields and the US dollar rose slightly, the Fed funds rate ceiling expected by CME derivatives rose from 5.15% to 5.25%, and the chances of a 75 bps hike in December rose to 64%. However, the last two indicators collapsed to 5.09% and 52.5%, and the greenback began to fall rapidly.

In my opinion, the EURUSD growth was speculative. Hedge funds began to get rid of the US dollar even earlier on expectations of the Fed’s monetary restriction slowdown. In the week ended November 1, Fed’s USD longs hit their lowest level in over a year against six major currencies. Jerome Powell only delayed the USD’s fall. Further strategy “when everyone buys, there is a great opportunity to sell” worked out. Strong employment data led to an initial EURUSD decline, but then traders took over. The active shorts’ closing accelerated the EURUSD rally to an extremely high speed.

Everyone is tired of the dollar. It has been growing for most of the year, and its strengthening negatively affected the global economy and prevented investors from buying US stocks. However, as soon as the topic of the Fed’s monetary restriction slowdown appeared in Forex, EURUSD bulls began to strengthen. As a result, Jerome Powell’s perfect job has been a failure. Does the peak rate interest anyone?

Weekly EURUSD trading plan

Will the Fed get angry at not being listened to? Will fundamental factors force traders to set back? We don’t know, and we don’t know when we’ll find out. Why don’t we take the same approach as the Fed? Anyway, until EURUSD falls below 0.987, the sentiment remains bullish, and the correction risks continue.

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