Riding the Wave: Analyzing the Impact of Fed’s Forecast on USD Strength

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The Federal Reserve is attempting to convince the market to maintain the federal funds rate for an extended period. US employment data supports the Fed’s position. However, the market appears reluctant to relinquish its desires. This results in the EURUSD partially rebounding after a decline to 1.0725. It is evident that good economic news is once again translating into positive market sentiment. For instance, in December, an uptick in employment, a drop in unemployment to 3.7%, and a rise in average wages to 0.4% MoM contributed to a surge in the S&P 500 index. The recent US employment data has further fueled market optimism for a soft economic landing. Investors are optimistic that the Fed can normalize inflation without triggering a recession. Despite the positive employment report, it is widely believed that the Fed will still be compelled to ease monetary policy in 2024. However, the pace and timing of such actions are still uncertain. In the meantime, stock valuations are being supported by the strong employment data. Nevertheless, it is evident that the Fed is less inclined to heed market demands. Therefore, holding short trades entered around 1.096 and added at 1.08 is a prudent approach for now.

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