EURUSD declines due to fundamental reasons

23 May 2023 178
EURUSD declines due to fundamental reasons

The EURUSD currency pair has almost reached the downside target, which was indicated in the last forecast. The dollar continues to be supported by the situation with the U.S. government debt, as well as a longer maintenance of the key rate at an increased level. This data strengthens bearish positions on the euro, as the ECB does not plan to change its strategy to raise the rate. Market expectations for the rate and officials' comments by the ECB coincide, but they are different from the Fed's.


Economists predict that the Federal Reserve System (Fed) will ease monetary policy later than previously expected. Experts also raised their forecasts for inflation and the labor market.

According to a survey presented by the National Association for Business Economics (NABE), the Fed will cut interest rates in the first quarter of next year. As the participants of the survey believe, the central bank will reduce rates in the first three months of next year. Forecasters remained in their view of the Fed's maximum overnight interest rate, which corresponds to the current target range of 5-5. 25%.


Problems with U.S. government debt continue to support the dollar.

On Monday, U.S. President Joe Biden and House Speaker Kevin McCarthy could not reach an agreement to raise the government's debt ceiling to $31.4 trillion. A little more than a week is left before a possible default, which could lead to the collapse of the U.S. economy. Officials promised to continue negotiations.  

According to Patrick McHenry from the Republican Party, the White House is not acting fast enough to resolve the debt ceiling crisis.


As it was written before, if the U.S. debt ceiling is raised, the Ministry of Finance will start borrowing money on the debt market to replenish the budget. Yields on the country's government bonds will begin to rise, which will be an additional support for the growth of the dollar.


According to the technical analysis, the EURUSD currency pair is in a downtrend. Since in the near future the situation with the debt ceiling will continue to intensify, it is advisable to open short positions to the euro. The new downside target will be the level from the beginning of this year at 1.055. Stop-loss can be set at an increase above 1.092. In this case, the downtrend will lose relevance.


The EURUSD currency pair decline:

Take profit – 1.055

Stop-loss – 1.092

This content is for informational purposes only and is not intended to be investing advice.

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