Forex Analysis & Reviews: 13.07.2022 - The IMF's negative outlook...

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InstaForex Loprais Team - Official participant of the Dakar rally

13.07.2022 01:16 PM

The IMF's negative outlook on the US economy will only strengthen dollar purchases

There is no denying that the world economy's geopolitical environment is currently operating in a dire state. As a result, inflationary pressure is increasing, which is one of the effects of the current events. The US economy's growth for this year and the following year was scaled back, and expectations for the jobless rate were increased, according to the International Monetary Fund's most current forecasts. The fund's economists warned that a significant increase in inflation poses systemic dangers to the nation's economy and the global economy.

Only 2.3% growth in the US's gross domestic product is expected this year. This is lower than the 2.9% forecast by the fund a month ago. In terms of unemployment, it is anticipated to increase to 3.7% from the earlier prediction of 3.2%. This percentage is predicted to rise beyond 5% in 2024 and stay there in 2025.

The report does not give the reasons for the revised downward US economic growth prediction from last month. The modification occurred in response to subpar statistics on consumer expenditure adjusted for inflation from the Ministry of Commerce, which decreased in May. The Federal Reserve System's aggressive monetary policy, which has resulted in the highest inflation in forty years, is exerting significant pressure on the economy's growth rate. The committee increased interest rates by 75 basis points last month, which was the largest increase since 1994. According to most Fed officials, another increase of at least 50 points is anticipated in July. The projection could be revised in light of today's inflation statistics, and we shouldn't rule out another abrupt increase of 0.75 percent.

According to the IMF executive director, an operational slowdown in price increases without raising the risk of a recession should be the top aim of US policy. He claims that preventing a recession in the United States is getting harder and harder because supply-side constraints, the ongoing COVID-19 pandemic, and special military operations in Ukraine make it harder to maintain the prior growth rates. High-interest rates are related to preventing further inflation growth, which in any case will result in considerable costs for the nation and detrimental effects on the global economy.

A downgrade will not impact the US dollar's projection because it is now being utilized as a safe-haven asset, compelling investors to sell off risky investments. The likelihood that the euro and the British pound will fall increases with how aggressive the Fed's interest rate policy is. The global economy will undoubtedly experience a recession, making things much more difficult for the key trading partners, the UK and the Eurozone. On the other side, the cheapness of the pound and euro encourages exports and international trade.

There is no indication of any purchase if we are talking about the technical prospects of the euro. The only way to deal with the looming bearish scenario is a return to 1.0050. Only after consolidation at this level occurs will the areas of 1.0110 and 1.0180 offer hope for a rebound. Even so, this will prevent the bulls from seizing market control. Maximum: we'll stay in the side channel once more. Buyers must demonstrate activity near 1.0000 if the euro continues to fall; otherwise, the pressure on the trading instrument will only grow. You can end your dreams of the pair's recovery, which would have opened a clear path to 0.9950 once you missed 1.0000. A breach of this support level would undoubtedly put more pressure on the trading instrument, creating a window for the test of 0.9915.

Now that the British pound is under pressure again, it is difficult to predict who will win in the end. Talking about a significant upward correction is no longer warranted given the current situation, as the bulls did not respond to positive economic data. We can expect a breakthrough to the 1.1980 range, where purchasers will encounter more challenges only once GBPUSD is fixed above 1.1920. We can discuss the 1.2030 update if the pound has a more significant upward rise. The pound will go directly to 1.1820 if the bears break below 1.1870. Beyond this area, another negative trend will already reach a minimum of 1.1750.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.