FUNDAMENTAL REVIEW FOR THE WEEK (10 - 14 June 2024)

The past week, right up to the last working day, passed strictly under the dictation of “risk” buyers. So on Friday morning, the key euro-dollar currency pair managed to overcome the level of 1.09 with direct access to the next key psychological milestone - 1.10. However, the “currency cards” turned out to be greatly mixed up by the published statistics on the American labor market.

After the April pause, the Bureau of Western Statistics again recorded a significant increase in the number of jobs in the United States - up to 272k against the forecast of 182k. This has reduced the rather serious degree of tension regarding overseas monetary policy, which many experts call too protectionist, with inflated interest rates on loans, which contradicts the basis of a capitalist economy.

Good data on the labor market allows the American banking regulator not to rush too quickly to reduce the discount rate and postpone the first rate cut to a later date. For now, the most realistic option is the September FOMC meeting. It was the expectations of more active actions by the Fed in relation to lowering interest rates that put quite serious pressure on the dollar, especially in the last few weeks. Now, most likely, this issue will now be postponed to a later date. For now, the most realistic option is the September FOMC meeting.

This week begins with a rather unexpected outcome of the EU parliamentary elections - a strong lag among the ruling parties - especially in France and Germany. The result is early elections to the French parliament, initiated by Macron, and a blow to the euro in the form of a gap at the opening. Often such price gaps are “emotional”, the price tries to close quite quickly, but then - you will need to look at the price reaction near the zone of the current “watershed” of purchases and sales. Now it is at 1.0814-1.0839.

The main news of this five-day trading period is the Fed meeting on Wednesday. However, there is a rather serious nuance here. Just a few hours before the announcement of the Fed's decision and Powell's press conference, US CPI inflation data will be published. They can significantly influence changes in the regulator’s rhetoric directly “online”.

According to experts, overall US CPI inflation will fall month by month due to a decline in current oil prices. It was oil prices that became the main reason for the rise in inflation in April, but now that oil prices have dropped significantly after the OPEC+ meeting on June 2, inflation pressure should also go down. For the Fed, such a scenario will be positive, since the regulator’s main task is not to “strangle” the economy with high lending rates. A steady decline in consumer prices will allow the FOMC to no longer delay cutting rates too much.

The main task of Jerome Powell's team is to find the optimal solution in terms of the start date of the bearish rate cycle and the number of these same cuts for the second half of the year. The more and faster this happens, the cheaper the American currency will be and vice versa. This is now the main trigger for the movement of financial assets in many sections.

Good luck and informed investment decisions!