USD: back to normal life. Forecast as of 27.01.2023

The global economy is going through periods of rapid spikes and falls. It doesn’t matter what causes them, the pandemic or the war in Ukraine. But sooner or later everything returns to normal. Let’s discuss this topic and make up a trading plan for EURUSD.

Weekly US dollar fundamental forecast

When US consumer prices soared in the middle of last year, many in the market started talking about a new era of excessively high interest rates by historical standards. What is happening now is a step back to the old conditions. The slowdown in US GDP from 5.7% in 2021 to 1% in 2022 is a return to a more normal rate of expansion of the indicator after the surge caused by the end of the pandemic. In 2023, the financial world returned to more normal divergences in monetary policy and economic growth, which increased last year, contributing to the US dollar’s strength. Therefore, the EURUSD rally is not surprising.

Despite US GDP expanding by 2.9% in the fourth quarter, exceeding the forecasts of Bloomberg experts, Commerzbank analysts believe that the US economy will no longer be booming. It is losing momentum, while weak retail sales and industrial production data for December make the future worrying.

At the same time, the expansion of consumer spending by 2.1% and a strong labor market, where the number of jobless claims fell to the lowest levels since spring, make it possible to avoid a recession. This circumstance, together with the stability of the European economy to the energy crisis and the opening of the Chinese economy, increase the positivity of investors. US stock indexes are actively growing, and capital inflows into EM-focused ETFs have reached their highest levels since the end of 2020, when the global economy began to lift lockdowns.

High energy prices and the need to pay for imports in USD in 2022 made EM economies extremely vulnerable. Now the situation has changed dramatically, and a sharp increase in investor interest in carry trade slows down the EURUSD rally due to the euro’s status as a cheap funding currency.

However, in the medium and long term, the growth of global risk appetite is a clear positive sign for EURUSD. The export-oriented economy of the eurozone will be stable, and the ECB will be given a free hand to maintain aggressive monetary restriction. 

Weekly EURUSD trading plan

However, the situation may change dramatically again because the rise in commodity prices due to the rapid recovery of the Chinese economy will undermine the positions of importing countries. Europe will once again discuss the coming energy crisis. However, all this is just speculation. The current consolidation of EURUSD in the range of 1.083-1.093 before the Fed and the ECB meetings looks natural. Any attempts to leave it before the end of January will fail. Use the euro’s rise above $1,083 to enter purchases and an unsuccessful breakout of $1,093 to enter sales.

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