When the stock, bond, and currency markets signal that the US is the best place to store money, the EURUSD correction is highly likely to continue. Let’s discuss this topic and make up a trading plan.
Weekly US dollar fundamental forecast
So far, the US dollar has been growing due to a lower probability of a 2023 Fed’s dovish reversal and rising expectations for a federal funds rate hike in the summer. However, looking at the positive signals from the stock, bond, and currency markets, many recall American exceptionalism. It signals that the US is the best option. However, EURUSD may take a break before the June FOMC meeting.
The theme of American exceptionalism is back in the markets. However, a week ago, the US was on the verge of default and downgrading of the credit rating. Nevertheless, Goldman Sachs has lowered the chances of a recession over the next 12 months from 35% to 25%, guided by the debt ceiling agreement and the reduced impact of the banking crisis on GDP. The World Bank has raised its estimate for global economic growth in 2023 from 1.7% to 2.3% due to robust US consumer spending.
The simultaneous growth of the USD and the S&P 500 was not caused by the greenback’s safe haven status. The euphoria over AI adoption by US companies contributes to capital inflows into the US stock market and strengthens the greenback.
The economy’s stability and high inflation force the futures market to abandon the idea of a dovish reversal. Moreover, the anticipated Fed pause in June did not upset the US dollar, as derivatives expect the monetary restriction cycle to continue in July. On the contrary, the fall in annual (from 5% to 4.1%) and three-year (from 2.9% to 2.5%) inflation expectations in the eurozone limit the expected ceiling of the ECB deposit rate to 3.75%. This deprives EURUSD of an important advantage.
No matter how much one of the main hawks of the Governing Council, Klaas Knot, talks about the secondary effects of inflation and that it will be more difficult to cope with it than expected, it does not help the euro. Disappointing German manufacturing orders data suggests that the technical recession of the largest eurozone economy may continue. This will certainly curb the enthusiasm of the ECB and the EURUSD bulls.
If the US macro statistics upset the markets, they will abandon raising Fed rates in July, weakening the dollar. However, the greenback is stable, thanks partly to American exceptionalism. Chinese exports also disappointed. So the best place to invest money right now is the US.
Weekly EURUSD trading plan
EURUSD correction to the medium-term uptrend may continue. However, investors are likely to take a break due to the upcoming release of US inflation data and the FOMC meeting. This will trigger consolidation in 1.06-1.076. Focus on sales on growth, purchases on decline, and intraday trading.
Weekly EURUSD trading plan
EURUSD correction to the medium-term uptrend may continue. However, investors are likely to take a break due to the upcoming release of US inflation data and the FOMC meeting. This will trigger consolidation in 1.06-1.076. Focus on sales on growth, purchases on decline, and intraday trading.
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