The US economic boom, everybody used to be confident in, seems to be delayed. The US jobs report has disappointed, politicians are looking for the reasons, the US dollar is falling. The euro bulls are going ahead. What’s next? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
Recovery is not a sprint, it is a marathon. The US economy has a long way to go. Some analysts could suggest that Joe Biden’s words in response to the disappointing US jobs report sound like an excuse. In my opinion, Biden explains why the Fed is in no hurry to discuss unwinding the monetary stimulus. The US economic recovery could seem booming at some point, but without the help of the central bank, it risks slowing down.
In April, US employment increased by 266,000 jobs, well below the expectations of Bloomberg experts. The previous report was revised down to +770,000. The report leaves the US roughly 8 million jobs below pre-pandemic levels. Unemployment ticked up to 6.1% from the previous figure of 6.1%. Some companies continue to doubt the economic prospects, others cannot find employees. Problems filling vacancies arise because the government pays people to keep them from returning to work, Republicans say. According to BofA Merrill Lynch estimates, those Americans who earn less than $ 32,000 a year, with existing support programs, have no reason to go to work at all.
Dynamics of US employment
Source: Bloomberg
According to Minneapolis Fed President Neel Kashkari, a weak US jobs report explains why the Fed has tied monetary policy to the pace of economic recovery. The market reaction proves that investors have finally believed that the central bank will continue to remain passive. Treasury yields fell and the USD had its worst daily drop in five months. It has almost returned to the levels of early 2021, and the idea of its significant weakening, which prevailed at the end of 2020, is again discussed in Forex.
Citi notes that the US exclusivity is exhausting, and the greenback is weakening amid the Fed’s passive attitude, moderate risk appetite, and global economic recovery. UniCredit expects the further decline of the USD as the global growth is recovering and the risk appetite is improving. In the week ended on May 2, hedge funds boosted their dollar shorts against a basket of major currencies to $10 billion, up from $4 billion in mid-April. The current USD shorts are far from $31 billion in 2020. It means the greenback has more room to fall.
Dynamics of USD and dollar speculative positions
Source: Bloomberg
However, the EURUSD bulls still have some problems. Following a drop after the US weak jobs report, the Treasury yields are recovering. Investors are now focused on the US inflation data, which, according to the forecasts, could be at 3.6% in April. If so, will the Fed remain as cool as it is now?
Weekly EURUSD trading plan
I believe, the Fed will hold its policy unchanged. This is not a sprint, this is a marathon. The EURUSD is close to the targets at 1.218 and 1.23, I indicated in late April. It is still relevant to add up to the longs on the corrections.
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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