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US dollar price forecast 29 June 2021 | EURUSD Fundamental analysis

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When the Fed was passive, the euro was growing steadily. Once the US central bank began taking active steps, the EURUSD bulls have been exiting longs. Let us discuss the Forex outlook and make up a trading plan.

Weekly US dollar fundamental forecast

The euro found some support amid the growth of global risk appetite and the dispute between hawks and doves of the Governing Council, indicating a split among the ECB members. However, the expectations of positive US employment data sent the EURUSD down to the bottom of figure19. A strong US employment report will boost the expectations of the federal funds rate hike in 2022, strengthening the greenback.

Based on the classic rules of Forex pricing, the euro uptrend in April-May could seem unnatural. The growth gap supported the US dollar, while the monetary policy of both central banks remained ultra-easy. However, because of its $6-trillion stimulus, the USA is now playing the same role as China after the 2008 financial crisis. It is the driver of global economic growth and demand for commodities and raw materials. For the first time in at least half a century, the S&P 500 and the commodity market index S&P GSCI rose by 5% or more for five consecutive quarters. In April-June, they added 8% and 13%, respectively.

Much has changed following the FOMC meeting in June. If central banks, led by the Fed, cease providing monetary support in the same volume, growth of stock and commodity markets will significantly slow down. Moreover, the concerns about rate hikes and inflation, as well as fears that the euro trend is at the peak and it is time to take profits, will increase the risks of a drop in the S&P 500 and S&P GSCI, which will support the greenback.

What arguments do the euro bulls have? A split in the ECB? The fact that Germany’s Jens Weidmann and Austria’s Robert Holzmann openly debate the prospect of winding down its 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) in March 2022 as the economy improves? After all, there are also doves in the Governing Council. Fabio Panetta sees no justification for slowing the bond-buying program too early, as it could result in the deterioration of financial conditions in the euro area and new asset purchases. Furthermore, markets expect the Fed to hike the interest rate much faster than the ECB. Given all this, could the EURUSD uptrend recover?

Dynamics of expectations of rate changes by Fed, BoE, and ECB

Source: Bloomberg

The FOMC members are debating whether to start by reducing purchases of mortgage-backed securities to avoid adding more fuel to the housing boom. Furthermore, some of the Federal Reserve officials suggest that the rate should be raised in 2022. Conversely, the ECB hawks can only dream about tapering the European QE. The divergence in monetary policies has been supporting the EURUSD bears for a long time, and a strong reading of the US employment data could send the euro deeper, towards level $1.177

Weekly EURUSD trading plan

According to Oxford Economics, this summer is strange. Some of the obstacles to employment growth are disappearing, which could result in a sharp employment rise. If this happens in June, traders will only regret not opening EURUSD shorts before. After all, it is relevant to enter shorts now when the price breaks out the support level of 1.19.

  

 

 

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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