US dollar price forecast 2 July 2021 | EURUSD Fundamental analysis
If consumers’ concerns about skyrocketing prices continue pushing the inflation expectations up, high inflation expectations will become a reality. How will this affect EURUSD? Let us discuss the Forex outlook and make up a trading plan.
US dollar fundamental forecast for today
Reputable organizations raise forecasts for US GDP growth. Europe, on the contrary, faces a significant loss of tourism revenue compared to 2019 due to the spread of the COVID-19 delta variant and the absence of the British. The president of the Bundesbank, Jens Weidmann,is the only one who claims that the ECB should not put up with high inflation. Investors expect a positive report of US employment. So, the EURUSD bulls are set back. The euro is falling despite the S&P 500 rally for six consecutive days. Have the euro bulls lost?
The Congressional Budget Office has raised estimates of economic growth and inflation in the States from 3.7% to 7.4% and from 1.7% to 2.8% in 2021. In 2022, the personal consumption expenditures index is expected to slow to 2%. According to the IMF, the US GDP will expand by 7%, which will be the fastest growth since 1984. At the same time, the authoritative organization believes that the Fed will have to raise the federal funds rate at the end of 2022 or the beginning of 2023 due to the increased risks of uncontrolled inflation rise. It seems that not everyone is as convinced of the temporary nature of high PCE values as the Fed. And this seems reasonable.
It is very difficult to manage inflation expectations, especially if you don’t know how to do it. The central bank does not want to intensify the concerns about high inflation, as the expectations can come true. The longer the personal consumption expenditures index stays above the target, the stronger these concerns will be. If so, the Fed is forced to discuss the QE tapering and rate hikes.
Dynamics of US inflation expectations
Federal Reserve Bank of Philadelphia President Patrick Harker says he is ready for the U.S. central bank to begin slowing the pace of its $120-billion asset-buying stimulus this year. He would like to see it happen sooner rather than later. The sooner the Fed ends the QE, the closer the date of the first federal funds rate hike. And the likelihood that this will happen in 2022 looks quite high. Therefore, the EURUSD uptrend seems to have broken down.
Thus, the Fed began to show concern that inflationary expectations, growing by leaps and bounds, would come true. Besides, Fed’s dual mandate means that the central bank will raise the interest rates provided there is full employment. June jobs report could become a reason to start monetary tightening.
EURUSD trading plan for today
Of course, the fact that factual data were lower than the projections over the past two months limits the abilities of EURUSD bears. Moreover, there is a concern that the rule “buy the news, sell the facts” will work out. Still, if non-farm payrolls grow by more than 700,000 expected by Reuters, the euro will continue falling to at least $1.177
Price chart of EURUSD in real time mode
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