empty
 
 
You are about to leave
www.instaforex.eu >
a website operated by
INSTANT TRADING EU LTD
Open Account

04.08.202320:30 Forex Analysis & Reviews: Euro lured into a trap

This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.

For the second time in a row, non-farm employment in the United States falls short of Bloomberg experts' forecasts. And for the second time in a row, the markets succumb to emotions. Neither the June nor the July reports can be unequivocally considered weak. They do not indicate a cooling of the labor market, which is necessary for the Federal Reserve to tackle inflation. However, investors prefer to play the idea of the end of the monetary restriction cycle and buy EUR/USD. Last month, this strategy worked well as the surprise of the American inflation favored the "bulls." But what about this time?

In July, the unemployment rate dropped to a fifty-year low of 3.5%, raising doubts about the FOMC's predictions of the indicator surging above 4% by the end of 2023. Wage growth rates increased by 0.4% MoM and remained at 4.4% YoY, surpassing Bloomberg experts' expectations. Such news should have overshadowed the slowest employment growth since 2020, at 187,000, and its downward revision to 185,000 in June. But they didn't. EUR/USD soared, and it felt like someone is manipulating the market. It lures buyers into a trap, and this could end very badly for them.

Dynamics of American employment, unemployment, and wages

Exchange Rates 04.08.2023 analysis

It should be noted that the euro managed to find its bottom during the European Forex session, even before the employment report in the U.S. was released. The "bulls" on EUR/USD were helped by an unexpectedly fast growth in German manufacturing orders, reaching a three-year high. Positive dynamics of this indicator suggest that Germany's economic downturn may soon end. This is joyfully perceived by the fans of the main currency pair.

However, no matter what the data is, decisions are made by people. The statement of ECB Chief Economist Philip Lane that due to a sharp decline in energy prices, inflation should decrease rapidly by the end of 2023 should be taken as "dovish" rhetoric. It hints at the impracticality of further raising the deposit rate. European Central Bank Executive Board member Fabio Panetta shares the same view. According to him, there is no need to further raise borrowing costs since the deferred effects of the ECB's monetary policy tightening are only starting to take effect now.

Dynamics of German manufacturing orders

Exchange Rates 04.08.2023 analysis

Exchange Rates 04.08.2023 analysis

In my opinion, the June report on American employment does not provide grounds to assume that the Federal Reserve will start cutting the federal funds rate before March 2024. The reaction of EUR/USD seems too emotional, and investors will revise their views in the near future. This creates premises for selling the currency pair on the rise.

Technically, on the EUR/USD daily chart, there is an attempt by the "bulls" to counterattack. Nevertheless, the quotes are still below moving averages, and the situation is being controlled by the "bears." The inability of the pair to overcome the convergence zone of 1.1015–1.1025 or a rebound from pivot levels at 1.1035 and 1.106 are reasons for selling.

Marek Petkovich
Analytical expert of InstaForex
© 2007-2024

Open trading account

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.




You are now leaving www.instaforex.eu, a website operated by INSTANT TRADING EU LTD
Can't speak right now?
Ask your question in the chat.

Turn "Do Not Track" off