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Never since the 1990s have financial markets been so hypersensitive to economic data. Investors are focused on the US jobs and inflation reports. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Fundamental euro forecast today
As soon as there are signs of the Fed’s dovish shift, stocks go up. Once the FOMC officials say that the Fed will continue hiking the rates aggressively, and there can’t be a rate cut in 2023, the S&P 500 crashes, followed by the EURUSD.
Even the ECB’s hawkish stance doesn’t help the euro. The minutes of the ECB September meeting noted that the issues of economic growth would not prevent the necessary forced increase in rates. By acting decisively now, it will be possible to avoid forced, more aggressive monetary restrictions in the future when the GDP starts to seriously slow down. It would seem that such phrases should have supported EURUSD. However, the demand for the US dollar as a safe haven increases, as most central banks tighten monetary policy aggressively and the global economy is about to slide down into a recession.
The IMF, which is about to cut the forecast for global GDP growth, also suggests increased downside risks. According to the organization, the global economy is like a ship in a storm. It has gone through shock after shock over the years. And the situation will hardly improve soon. Instead, it will worsen due to problems with the Chinese housing market, sovereign debt, and illiquid assets. Global GDP is likely to contract for at least two quarters in 2023.
What should investors do amid the market storm? I recommend monitoring economic data. Never since the 1990s have financial markets reacted so sensitively to US domestic data. The markets are operating in the “bad news from the US economy is good for the market” mode, as, despite all the failures, they continue to believe in the Fed’s dovish shift. A typical example is the reaction of stock indices to the US PMI report.
Dynamics of S&P 500 and PMI surprise
Source: Wall Street Journal.
Of course, the key indicator is inflation, whose report is scheduled for October 13. However, the US jobs report is also essential. If the US labour market is cooling down significantly, the Fed could suspend monetary tightening. I don’t believe this is a likely scenario. Judging by the speeches of the FOMC officials, the Fed is far from reaching its inflation target.
EURUSD trading plan today
When the market moves from Fear to Greed and back, one could make a good profit. The consensus forecast of Bloomberg experts suggests that US non-farm payrolls will grow by 250,000. If the actual data are much lower, at + 100,000-150,000, the S&P 500 and EURUSD are likely to rally up. Stick to the strategy of short-term purchases followed by medium-term sales. A strong US jobs report could send the euro below $0.97.
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 LiteFinance. 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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