Prediction for Forex Today
The DXY dollar index broke past the 105.00 point level again on Thursday, March 02, but could not hold it. The dollar was supported, as usual, by an increase in US government bond rates.
The yield on 10-year notes increased to 4.09%, its highest since November 10, and the yield on 2-year securities increased to 4.91%, its highest since 2007. The adjustment of US labour market figures in Q4 2022, as well as the ISM Manufacturing Business Activity Index (PMI) in the country's manufacturing sector, boosted the US dollar. The dollar, on the other hand, was under pressure from the yuan, which is strengthening against the backdrop of Chinese macroeconomic data.
China's PMI manufacturing index was the highest since 2012. Service sector activity has also improved, and the Chinese real estate market has steadied.
Yet, the key factor influencing the USD's behaviour is still the prospect of fiuture Fed efforts to combat inflation. Because the Consumer Price Index (CPI) grew more than predicted in January, reaching 6.4%, market investors have begun to speculate that the regulator may boost interest rates by 50 basis points (bp) rather than 25 in March. (At the present, CME's FedWatch tool rates the likelihood of such a move at 23%).
Several FOMC (Federal Open Market Committee) members made hawkish statements in support of this prognosis. Rafael Bostic, the Atlanta Fed's president, stated that the main interest rate should eventually be hiked to 5.00-5.25% and held there until 2024.
Minneapolis Fed President Neil Kashkari has yet to decide whether to vote for a 25bp or 50bp rate rise in March, but he has signalled that the Fed's own dot plot may be boosted. At the same time, both leaders emphasised the need of fighting inflation, highlighting that a robust labour market and the US economy can resist the pressures produced by the Central Bank's active monetary policy.
Rafael Bostic, on the other hand, moderated his hawkish tone and stated that the regulator may stop the rate rise cycle in the summer. Following that, the dollar retreated somewhat from its gains.
Some analysts believe that the top Dollar rate will hit 5.5%, if not 6.0%, in September. There is no way it can be reduced at the end of the year. And these predictions favour the US dollar, as verified by the futures market. But, while discussing the EUR/USD, one cannot just focus on the Fed's actions. They don't sleep either on the opposite side of the Ocean.
Inflation statistics from a number of European nations show that the ECB may be obliged to retain its hawkish stance for a longer period of time than originally anticipated. The Chinese economy's openness might put pressure not just on the United States, but also on Europe, making it difficult for both regulators to control inflation. As a result, market investors anticipate additional tightening of monetary policy by the European Central Bank, which is presently keeping the pair at the 1.0600 range.
The previous week's close was 1.0632. At the time of writing (the evening of March 03), the analysts' prognosis appears to be as unclear as the EUR/USD flat quotes: 50% of them have taken a neutral stance, 30% expect the dollar to rise more, and the remaining 20% favour the euro. On D1, 50% of the oscillators are red, 15% are green, and 35% are neutral grey.
Of trend indicators, 35% advise selling and 65% advise purchasing. The pair's closest support is at 1.0575-1.0605, followed by levels and zones 1.5000-1.0530, 1.0440, 1.0375-1.0400, 1.0300, and 1.0220-1.0255. Bulls will face resistance at 1.0680-1.0710, 1.0740-1.0760, 1.0800, 1.0865, 1.0930, 1.0985-1.1030.