Forex analytics. Dollar scares “bears”. – ForexNews.PRO

Those who don’t make mistakes don’t work. The collapse of the EURUSD came as a surprise to major banks such as JP Morgan, Goldman Sachs, Morgan Stanley, Citigroup and Bank of America. They expected the rally of the main currency pair to continue by about 4% by the end of the year. In fact, the USD index rose to 2-month highs amid events in Japan, France, the shutdown, as well as a split in the ranks of the Fed.

The ranks of greenback bulls are significantly larger than the five mentioned credit institutions. For example, MUFG Bank believes that the euro will rise to $1.2 if the political crisis in France subsides. However, mass participation often becomes an Achilles heel. If the crowd had always been right, the sun would still be orbiting the earth.

The 10% drop in the USD index in the first half of the year, first due to the “sell America” strategy against the backdrop of Donald Trump’s tariffs, and then due to the hedging of currency risks by non-residents, suggests that the US dollar is oversold. The White House will not force the Fed to aggressively cut rates, and tariffs have not frozen the labor market and the economy of the United States. Moreover, according to research by the Federal Reserve Bank of Dallas, the slowdown in immigration has reduced the break-even employment rate to 30 thousand. Such a mark will not lead to an increase in unemployment, which means the Federal Reserve has nowhere to hurry.

If we add to this the results of a study by the Federal Reserve Bank of Boston, we can even start talking about a change in the uptrend for EURUSD. According to the bank, the rise in inflation expectations is more like the 1970s, rather than a pandemic. In 2020, consumers feared a spike in food prices, and in the end, the CPI surge turned out to be temporary. Half a century ago, we were talking about a lot of goods, so inflation turned out to be more stable. If it continues to gain a foothold near 3%, the Fed will not aggressively cut rates. If he doesn’t pause at all.

It is not surprising that investors are returning to the US dollar. When markets assessed the aggressive series of cuts in the federal funds rate, their expectations will be difficult to fulfill without a significant cooling of the labor market. The risks of a greenback reversal are upward, which implies the development of a correction in the USD index.

The EURUSD bulls hoped that the shutdown would force the Fed to blindly loosen monetary policy. However, the negotiations between Democrats and Republicans increase the chances of its early end.
In my opinion, only a return of the EURUSD above 1.16 will allow us to increase the longs formed from 1.1545. The inability of the main currency pair to break above this resistance in the coming days may be the reason for switching to short positions.