FOREX Fundamental analysis for EUR/USD on April 23, 2024
The head of the French Central Bank, Villaroy de Galo, argues that the conflict in the Middle East will not affect the ECB's determination to cut rates in June. However, a downturn in geopolitical tensions could change the outlook for the US dollar. The volatility of Brent contributed to the growth of the dollar as a defensive asset. Now, when oil prices are declining, the sale of dollar assets begins. Discussions that most of the factors negatively affecting the euro have already been taken into account in the EURUSD rate contribute to the stabilization of this currency pair with increasing correction risks.
Bank of America believes that three expected ECB rate cuts in 2024 have already been reflected in the exchange rate of the single currency. If the European Central Bank takes less drastic measures regarding monetary policy, by the end of the third quarter, the EURUSD rate will rise to 1.1, and by the end of the year to 1.12. Provided that the Fed cuts the federal funds rate twice, as markets expect and as Black Rock analysts predict. And this opinion deserves close attention.
According to Bloomberg, Black Rock and similar companies currently manage assets of $43.5 trillion, which is twice as much as those of credit institutions. We can say that they largely shape forex currency trading. As for the views of Bank of America, it is assumed that if the rate is kept at 5.5%, EURUSD is quite capable of going down to 1.05 and below.
The further dynamics of the main currency pair will depend on how the Fed and ECB rates change. At the end of April, it is worth paying attention to the elaboration of arguments in favor of the sustainability of the greenback. This is not only related to oil. There is an active discussion about how realistic it is to increase the yield of 10-year US bonds to the level of 5% and above. However, to continue the rally, it is necessary that the federal funds rate remain at 5.5% or even higher.
Morgan Stanley warns about the risks of currency inflation. A large discrepancy in the monetary policy of the ECB and the Fed may lead to a strong weakening of the euro against the dollar, which may increase inflation risks. Therefore, the ECB may not cut rates as actively as the market expects.
The greenback can be supported by statistics on US GDP for the first quarter. The US economy has been growing by 2% or higher for the seventh consecutive quarter, which indicates its resistance to a 525 basis point rate hike. However, behind this sustainability there are significant fiscal incentives that contribute to the growth of government spending, and this cannot last forever.
We believe that EURUSD needs time to assess whether all the factors affecting the EA dollar have already been taken into account by quotes. This may lead to temporary stabilization in the range of 1,061-1,071. At the same time, today's statistics on business activity indices can shake the volatility of currency pairs.
Technical analysis for EUR/USD
EUR/USD continues to trade in a downtrend with a target at the low of April 16. If the pair can gain a foothold below the extreme, then the next target of the "bears" becomes Target zone in the range 1.0561 - 1.0544. We continue to hold short positions open from resistance (A) 1.0693 - 1.0685.
The cancellation of the main sell scenario will be the consolidation of the pair above the maximum of April 18. In this case, we are waiting for the development of an upward correction to the resistance (B) 1.0739 - 1.0727. The trend line also runs here, which increases the importance of resistance. After testing the zone, it will be possible to search for entry into short positions.