There is no smoke without fire. After a strong report on the US labor market, investors turn their attention to inflation, the release of data on which is scheduled for October 13. At the same time, the meeting of finance ministers and heads of central banks of the G20 on October 12-13 remains behind the scenes, at which issues of coordinated currency intervention can be discussed by analogy with Plaza Accord in 1985. Then and now, the strong US dollar has already bored everyone. We need to do something with it.
The problem is that even the sales of the greenback and the assets nominated in it still generate new purchases of the US dollar. There is no need to go far for an example: the intervention of the Bank of Japan in the life of Forex in order to stop the unrestrained fall of the yen led to the sale of treasury bonds from the gold and foreign exchange reserves of Japan. The profitability of the latter increased, which increased the appeal of US assets and provoked a rise in the dollar. As a result, USDJPY quickly returned to the same levels as it was before the currency intervention.
The same thing happens with the increase in rates by central banks-competitors of the Federal Reserve. The more aggressively they act in order to strengthen the position of their own monetary units in the fight against the US dollar, the better the greenback feels. It is the main safe-haven currency, and fears that central banks will overreact and provoke a recession in the global economy, maintains increased demand for this asset class.
Rumors are growing in the market that the Fed may overdo it in the first place. It made a mistake in 2021, claiming that high inflation is a temporary phenomenon, and now, with the help of a sharp increase in the federal funds rate, it is trying to regain shaken confidence. At the same time, the stronger the latest statistics look, the higher borrowing costs may rise. In this regard, an increase in employment outside the agricultural sector of 262,000 and a decrease in unemployment to 3.5% in September allow the FOMC hawks to feel confident.
Dynamics of US labor market indicators
At the same time, good news from the economy is bad news for the stock market. It is clearly wary of a recession and poor corporate reporting for the third quarter. The strong US dollar will certainly leave an imprint on it. It will worsen the corporate profits of US companies operating abroad, which will contribute to the fall of the S&P 500 and further strengthening of the US currency.
So it turns out that no matter how central banks and investors try to contain the USD index, it turns out even worse. It seems that without a coordinated intervention, the US dollar cannot be stopped. But will the US Treasury and the Fed want to go for it?
Technically, EURUSD continues to gain momentum for the downward trend on the daily chart. Formed on the rise to 1 and 0.995, as well as on the breakthrough of the support at 0.985, we hold the shorts and periodically increase them on rollbacks. The targets are 0.95 and 0.92.