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Forex trading during recession: U.S. GDP undermined investor confidence and scared away buyers of risky assets

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capital forex trading

Important news for capital forex trading. The euro and the pound rose, while the dollar lost all its ground after the recessionary drumbeat of the US economy got louder. The other day a report came out showing that the US economy contracted for the second quarter in a row amid a sharp drop in consumer spending and interest rate hikes by the Federal Reserve. However, do not rush to buy Euros and British Pounds, as nothing good is about to happen anytime soon for you to really talk about a rise in market sentiment.

Forex trading during recession

According to data from the Commerce Department, gross domestic product fell 0.9% year-on-year after a 1.6% decline in Q1. Personal consumption, the biggest part of the economy, rose only 1%, less than in the previous period. 

This data added headaches not only for the Federal Reserve but also for President Joe Biden, whose political career is now in jeopardy. In addition to the slowdown in household spending, the report also showed a decline in business investment, a drop in government spending and a drop in home prices. Inventories also had an impact on GDP, and only the narrowing trade deficit had a positive effect on the indicator.

The key core demand indicator, which excludes trade and inventory components, fell 0.3% in the second quarter, compared with an increase of 2%.

Quite expectedly, high inflation undermined Americans’ purchasing power, and the Fed’s tighter monetary policy weakened an interest-rate-sensitive sector such as housing. The contraction of the economy for the second quarter in a row clearly indicates that the U.S. has already entered a recession, and the question now is not when, but how long it will be observed.

Economists had expected GDP growth of 0.4% and an increase in consumer spending of 1.2%. The data also showed that spending on services accelerated to an annualized rate of 4.1%, while spending on goods declined 4.4%. Housing investment fell 14% year-over-year.

The situation on the currency market: the disadvantages of forex trading

This is definitely putting pressure on the US dollar, but it is hard to say how much longer we will see the euro and the British pound rising vigorously. The euro zone economy is one step away from recession, as is the UK economy, where the ongoing struggle with the cost of living crisis on the back of high inflation continues. Eurozone consumers have yet to face the sharp rise in interest rates that the European Central Bank began this month. The difference between forex trading and stock trading can be clearly seen in what is happening. It is much harder to make predictions here. 

What will happen to forex trading during a recession? The fixing of the Euro at 1.0170, gives buyers of risky assets an excellent chance. Now, the whole focus has shifted to the nearest resistance, 1.0220. The break-up of this range will give confidence to the buyers of risky assets, which will open a direct way to the high at 1.0273, which defines the further uptrend of July 14. 

Breakdown of 1.0273 will open the possibility of updating to 1.0320 and 1.0370. In case the Euro declines, it is very important for buyers to show something around 1.0170; otherwise the pressure on the trading instrument will only increase. If you miss 1.0170, you can say goodbye to hopes of recovery, which will open a direct way to 1.0130 and 1.0090. Break-through of this support level, probably, will increase the pressure on the trading instrument, opening the possibility of a return to 1.0040.

The pound is at the new local highs and the most important thing is to hold the support at 1.2200 today. If it succeeds, we can expect a larger movement of the pound upwards and speak about updating from 1.2250, with further exit at 1.2285 and return to 1.2330. A break through this range will easily take the pound back to 1.2400. If 1.2200 is empty, we are likely to correct heavily to 1.2160, with the prospect of a test of the larger 1.2110, where the bottom of the current rising channel passes.

Forex trading disclaimer: Remember that when you make decisions in the currency market, you must make your own decisions and not listen to others’ calls to action.



Forex

US recession and stock market. Thomas Barkin, Fed: Recession is virtually impossible

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us recession and stock market

The U.S. recession and the stock market are closely linked. The key U.S. stock market indices – Dow Jones, NASDAQ and S&P 500 – have resumed their growth, and this movement already raises a lot of questions. To remind you, the U.S. stock indices have been rising for several weeks in a row and even updated their previous local highs, recovering by 40-50% after falling in recent months. 

Thomas Barkin, one of the members of the Board of Governors of the Fed, said that inflation is declining because of the leveling of demand. He is probably referring to the core rate, which has really stopped rising. But the core continues to be at its highest level in 40 years, and we wouldn’t say at this time that inflation is slowing. 

On US recession news Barkin also said that inflation will not fall immediately, sharply or quickly, and that the Fed is unlikely to get help from supply chain fixes or other world events. He also noted that the U.S. economy is not in danger of a recession, and at this time there is only a slight slowdown in GDP growth, as a recession is not possible with 400,000 new jobs created each month (NonFarm Payrolls). 

In light of this statement and earlier statements from Powell and Yellen, Friday’s NonFarm Payrolls report becomes even more important than before. Recent reports have indeed shown the strength of the U.S. labor market, but what if Nonfarm Payrolls start to decline? What will the Fed members say then, how will the U.S. stock market move? We still believe that despite the strong upward correction, there is still a long way to go before the downtrend is over.



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Euro rate chart: the euro is not going into a trap

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usd to euro rate

No matter how much FOMC officials try to convince investors of the Fed’s commitment to aggressive tightening of monetary policy, so far the financial markets are not taking the Central Bank’s bait. How has this affected the euro rate chart? 

U.S. stock indices started rising again and hit a peak in the last two months. The reason for this is the expectation that the Fed will introduce new mechanisms to stop the fall. At the same time, there are no guarantees that the Fed will take drastic measures. Owing to the fact that the situation is ambiguous and nobody makes accurate forecasts, the EURUSD exchange rate constantly fluctuates in one direction. The pair cannot go beyond the consolidation range at 1.01-1.03.

USD to euro rate: what’s going on in the currency market?

Investors are hoping the report on the U.S. labor market in July will give some clarity. No one wants to get ahead of the curve before it is published. In such a situation in the past, one or several big players could provoke a false-break. Statistics were used to implement that idea. Now nobody wants to take risks. The Eurozone data does not lead to serious fluctuations in EURUSD.

In particular, the fact that German manufacturing orders have been declining for the fifth month in a row might have dealt a blow to the euro. However, the bulls in the main currency pair found it positive: in fact the index fell by 0.4% m/m against a forecast of -0.9%.

Meanwhile, consumer expectations for future inflation remain at elevated levels in the eurozone. Respondents expect gross domestic product to contract by 1.3% over the year and unemployment to rise to 11.5%. This is in stark contrast to the central bank’s forecasts. It does not expect a recession and sees the unemployment rate at 7% through 2024.

FOMC officials are 100% convinced that if monetary policy is tightened, the markets will start to fall. But this is a natural phenomenon. No one has canceled the market cycle. It’s a pattern. So we should not expect domestic consumption to decline and inflation to come to a complete halt.



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European stock market news: Europe started to lag behind the rise in U.S. stock prices

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european stock market news

Current European stock market news: U.S. stock futures rose slightly Friday, helped by tech stocks as investors prepare for the monthly U.S. jobs report, which is likely to revive the recession debate.

Futures on the Nasdaq 100 rose, signaling the underlying indicator could reach a 20% gain from its June low and meet the technical definition of a bull market. The S&P 500 futures were up modestly.

European stock market analysis

European equities were flat, but they started to lag their “American counterparts” and the daily candlesticks clearly show it. The Stoxx50 index is still undecided as media firms and insurers drag it down.

Investors are returning to defensive stocks, especially tech stocks, as falling bond yields make long-term assets more attractive. 

The global stock index is poised for a third weekly gain, and is approaching a two-month peak in recovery from bear market lows, helped by solid earnings at U.S. companies. 

U.S. jobs data on Friday is the next key point for the markets. Likely hiring, according to Anne Wong, Bloomberg Economics’ chief U.S. economist, things eased in July, but the labor market remains in line with a growing, not-recessionary, economy and the Fed will continue to raise rates.

Separately, Democrats agreed to a revised version of their tax and climate bill adding a new 1% excise tax on stock buybacks.



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