The EURUSD is rising amid an increase in Germany’s inflation and a weak reading of the US GDP. Investors interpreted Jerome Powell’s speech as a dovish statement. Have not they been mistaken? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
People hear what they want to hear. They took for truth Jerome Powell’s statement that it was still a long time before raising the federal funds rate but did not believe the words of the Fed chairman about the adaptation of the US economy to the pandemic. After the release of disappointing data on US GDP for the second quarter, investors continue to speculate how the Delta will slow down the gross domestic product, which, coupled with the positive reports in the euro area, encouraged the EURUSD bulls to go ahead.
A few days ago, some traders wanted to sell the dollar, as the US economy peaked and was likely to slow down so that the United States will lose its exclusivity. GDP growth of 6.5%, and not 8.4% expected by Bloomberg experts, in April-June showed that the peak is still far away. Optimists focus on a decrease in stocks due to a lack of supply and expect that growth in this component will push the gross domestic product up to 8% in July-September. Pessimists worry about the Delta. In their opinion, the spread of the new strain of COVID-19 will lead to new lockdowns and reduce consumer spending.
Dynamics of US GDP
For me personally, the glass is half full. I believe that the delta variant of the coronavirus was given to humanity to speed up vaccination – the only way to defeat the pandemic. In Britain, where 57% of adults are fully vaccinated, the number of new coronavirus cases is already beginning to decline. Despite the complete opening of the economy. I believe that the epidemiological situation in the United States will soon begin to improve. Jerome Powell is right, so why not believe his other ideas?
The problem is that some of Powell’s ideas can be misinterpreted. For example, the phrase that several strong reports on the US employment are required to start the QE tapering has discouraged some investors from believing that the end of the asset purchases will be announced in Jackson Hole in August. However, the announcement of the withdrawal of monetary stimulus and the start of a reduction in the scale of asset purchases are different things. In addition, one cannot compare the previous experience, when 14 months passed between the end of the QE and the rate hike, and the current conditions. The US economy plunged into the deepest recession (GDP in the first and second quarters of 2020 fell by a record average annual 19.2%) and came out of it very quickly. So why shouldn’t the Fed hurry up?
The EURUSD rallied amid an increase in Germany’s inflation to 3.1% in July, the highest since 2008. Trade unions demand wage increases. German central bank chief Jens Weidmann has said his advisers anticipated inflation nearing 5% in Germany later this year.
Dynamics of German inflation
Weekly EURUSD trading plan
Unfortunately, the CPI surged amid temporary factors, and the Bundesbank chief alone cannot influence the ECB monetary policy. A strong reading of the euro-area inflation and GDP could send the EURUSD even higher, but the uptrend will start exhausting soon. Isn’t it a reason the sell the fact? Unless the euro consolidates above $1.188, it will be relevant to sell because of the buyers’ weakness.
Price chart of EURUSD in real time mode
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