Sive Morten
Special Consultant to the FPA
- Messages
- 18,654
Fundamentals
So, we've got stunning inflation data in January - not only CPI, but different CPI Core indexes as we will show you below, hidden trick in PPI numbers that point on really tough situation in the US production sector. Today we have a lot to say about inflation topic. Actually recent data put the Fed and Yellen at the edge. They have to make some radical steps, although they are in checkmate situation. You can't raise rate because everything will collapse, and you can't cut it because of inflation will raise. So, they still will have to choose either red or blue pill.
If, of course, they will not make some trick move... I don't know about you guys, but personally I do not like recent mess - massive attack on D. Trump, some artificial legal claims against him, expelling him from voting lists, some curious announcements of national security hazards, Navalny's death, some explosions in Washington DC metro etc. I'm worry that this might be some preparation for emergency plan to cancel elections in 2024 or postpone it... And simultaneously resolve problems with the national debt in some radical way. Sounds a bit mystic, but I do not surprise to anything now...
Market overview
Let's see what market thinks about right now, what is the basic sentiment in the minds of investors...
The dollar rose to three-month peaks on Tuesday, after data showed U.S. inflation rose more than expected in January, reinforcing expectations that the Federal Reserve will hold interest rates steady in March. Tuesday's data showed that the Consumer Price Index (CPI) rose 0.3% on a monthly basis in January, above the 0.2% increase expected by economists polled by Reuters. On a year-on-year basis, it gained 3.1% versus the 2.9% estimated growth.
Excluding the volatile food and energy components, the CPI increased 0.4% last month after rising 0.3% in December. The core CPI advanced 3.9% year-on-year in January, matching December's increase.
Federal funds futures on Tuesday had priced in no rate cut in March and a lower than 50% chance of easing in May, according LSEG's rate probability app. The first rate cut by the Fed is now expected to occur at the June meeting, with a roughly 80% probability. The market has also factored in about three rate cuts this year, in line with the Fed's rate forecasts, or what is called the "dot plot" released back in December.
The dollar retreated on Friday amid concerns about the strength of the U.S. economy after higher-than-expected producer prices raised expectations that the Federal Reserve will desist from cutting interest rates until at least the middle of the year. But data on Thursday for U.S. retail sales in January showed the sharpest drop in 10 months, giving some in the market pause as the report suggested slowing momentum in consumer spending as sales were revised lower in November and December too.
U.S. markets will be closed on Monday for the Presidents' Day holiday.
Single-family housing starts, which account for the bulk of homebuilding, dropped 4.7% to a seasonally adjusted annual rate of 1.004 million units last month. While Michigan Institute survey's reading of one-year inflation expectations edged up to 3.0% this month from 2.9% in January.
Hotter-than-expected inflation in January shows that the United States' path back to 2% inflation "may be a bumpy one," Fed Vice Chair for Supervision Michael Barr said on Wednesday, adding it was too early to be assured price stability will be restored without a significant blow to jobs or economic growth.
Deutsche Pfandbriefbank (PBB) shares fell more than 10% on Thursday and the price of its debt tumbled to a record low after S&P cut its credit rating over concerns about the lender's exposure to commercial real estate. Ratings agency S&P cut PBB's rating one notch to BBB-/A-3 from BBB/A-2 late on Wednesday with a negative outlook.
Euro zone inflation is heading back towards the 2% target but the European Central Bank still needs more confirmation before it can cut rates, two influential policymakers said on Thursday. That message was echoed by Spanish central bank Governor Pablo Hernandez de Cos, who said the next move was a cut but there was no hurry.
Meantime, Europe's sluggish productivity growth may slow the fall in inflation to the European Central Bank's 2% target, ECB policymaker Isabel Schnabel said on Friday. Reaffirming her stance, Schnabel said this meant the ECB had to be "cautious" and not cut rates "prematurely" to avoid a second flare-up in inflation as happened in the 1970s.
The International Monetary Fund is now "very confident" the global economy will see a soft landing, its managing director Kristalina Georgieva said on Monday, adding that interest rates would start coming down around mid year.
Close Look on Inflation
Once again, it is the hot topic. And this is logical. Because as the Fed as US Treasury has less and less time until election. Tension in economy is raising and becomes more and more difficult to keep smiling with bad game. Recent inflation report has few interesting point that were not widely shown in media. Here is few interesting pics:
So, in "market overview" part we've considered the common opinion. Numbers could delay the Fed decision on rate cut, but also they could be temporal, because January data usually volatile and subject to revision. IMF's K. Georgieva even suggests that first rate cut comes in summer. But if we take a look at some details, we will see very dangerous signals. Most important thing is divergence between classic PPI that shows price index for final products and "all commodities" PPI that shows prices on the first stage of production chain. First one shows inflation, while the 2nd one keep showin deflation.
The scale of deflation in the US industrial sector increased from -3.1% to -3.7%. The industrial sector in the United States is doing very badly, there is a steady decline. This months, by the way, the US Industrial Production has shown official decline first time in three months. A bit curious picture, industrial prices in the US are falling, and the PPI index is growing. How can this be? "All commodities PPI" shows the full volume of industrial goods is mainly the beginning of technological chains. There prices are falling, because no one needs semi-finished products. Producers try to cut prices to survive, production is becoming non-profitable and closing. At the same time the final (and, very likely, imported) goods, are growing in price. In other words, production in the US is falling, while imports are growing against the background of stimulated demand.
At the same time, retail sales are falling. The poor people have less money and they reduce purchases of expensive goods (the fall in demand is very high, higher than inflation). As we've mentioned last week, consumers activity is stagnating, setting the plateau, as savings stand at near lows.
The rise in consumer inflation over the past month is very serious, and the US monetary authorities should start doing something. It is already clear that it is impossible to soften monetary policy, that is, the rate will remain high, and the money supply will need to be reduced. The trouble is that the industry is already falling, as well as the level of sales, that is, the standard of living of the population. In the pre-election year, this is unacceptable for the ruling party. Other worrying bells are slowdown in QT programme and raising of M2 money supply for the first time in few months. Michigan inflation expectations also are raising a bit. Also pay attention to "super core" numbers that show strong growth. Inflation is migrating from one sector to another, which is typical for structural crisis.
February began with the fact that the US banking sector began to publish its final reports for 2023, judging by the figures, the situation in the States is not very good, some banks have already begun to talk about the need for cuts, and some have already openly announced their complete restructuring. Judging by the fact that the net profit of banks for 2023 fell by 45% (amounting to about $38 billion ), the situation in the sector is at least tense. Much of the sector's growth was eaten up by the fall of regional banks.
Banks received an unexpected blow in terms of bad loans: here the increase in reserves amounted to more than $5 billion , in addition, banks declared $4 billion in losses on securities. The total losses forced banks to sharply reduce employees; as a result, they laid off more than 45 thousand people in 2023. For some banks, 2023 is proving to be a year of big change. After another unprofitable year, Citi decided to completely change the principles of its work and plans to single-handedly lay off more than 20 thousand people by the end of 2026.
Based on the results of 2023, bank profitability increased by only 2% , and all this despite the fact that both the Government and the regulator actively helped the sector through direct loan lines. In the near future, however, these relief measures will end and banks will be left alone with their problems. NYCB's recent earnings release which sparked a dive of about 60% in its shares has particularly focused investors on combing through portfolios of regional banks, as small banks account for nearly 70% of all commercial real estate (CRE) loans outstanding, according to research from Apollo.
Conclusions:
It seems that The dollar system will be shaken by rate hikes in the “window” from February to June and it is a rhetoric question what will break first. In general, to prevent inflation from accelerating to 5% year-on-year by May-June, the Fed must now dramatically change its rhetoric not just to hawkish, but to vulture-like. But they won't do this. All the mainstream media have been buzzing their ears about a soft landing, and such a change in rhetoric will make this very landing absolutely hard. But they won’t be able to afford to lower the rate to support the economy. Then the end of the world dollar system. Therefore, it is important that the rhetoric be harsh enough for deflationary sentiment to rise, and not harsh enough for a panic collapse.
So the opening holes in the system will be filled with money, which will still add fuel to the fire of inflation, despite the fact that no one will reduce the rate until the last minute. And this is exactly what is needed to solve the problem with the same commercial real estate market.
The fact that record low inflation expectations are observed against the backdrop of actual inflation growth does not, in principle, indicate anything other than complete inadequacy and misunderstanding of the situation by the market.
By and large, it is only the beginning of the year, but the heating processes have begun. The market is high, everyone believes in an imminent reversal of the Fed’s policy. At first they expected it in March, after Powell’s speech they expected it in June. They will look at inflation dynamics for a couple of months and stop waiting altogether. In many ways, it is the “quick” policy reversal (and the outflow of capital from China) that is driving the growth of the stock market, so something may change here too. Based on how clumsily they started pumping up the story about the mental health of grandpa Biden, it is quite likely that it will go bad even before the elections. After all, criminal liability does not apply to the mentally ill and infirm.
The market is growing, largely due to the expectation of an imminent rate cut. If the rhetoric changes and the Fed makes it clear that the rate will not be reduced for another year or a year and a half, then market sentiment towards stocks will worsen. There are too many tension points in the system tied to a high rate. Same banks and real estate. So if the rhetoric changes now, this could lead to a powerful deflationary impulse - already from the demand side, and first inflation will slow down, and then everything will slide not just into a recession as a cyclical decline, but will simply collapse.
Until a recession and financial crisis sets in, that the system has been cleared of imbalances, any actions by the Fed will be a game of finding a balance between two scales - inflation and economic recession. And the longer this continues, the stronger the fall will be later. By far In fiscal year of 2024, the US government has received $1.58 trillion in revenue and spent $2.12 trillion. It means that the deficit amounted to $532 billion. At first glance, it seems that they are stable, but we have to compare it with tax income that budget gets:
17% now is spending on interest expenses. Every time US tax revenues declined, it meant the US was in or about to enter a recession. ️The last three times tax revenues fell this low was after the tech and credit bubble burst and after COVID.
Thus, whether the Fed will change the rhetoric or not - inflation will accelerate anyway , there is no need to create illusions that rhetoric can fix anything. It was in 2005 that Greenspan could “mumble” the markets and the rise in prices; now such a trick will no longer work.
The slowdown in inflation in 2023 was caused by (1) a fall in prices for oil and petroleum products (due to interventions from the SPR) and also (2) a relative fall in food prices - they rose too much in the previous period. Plus (3) the strengthening of the dollar had its effect.
But now the first, second and third are already in the past, so the only way is up, no matter what Powell says. And in the pre-election year, the lesser evil is not to focus attention once again, and it is best to simply not notice the problem for as long as possible. Besides, we already see that it seems that the Fed steps on a slippage way of money printing, with slowing QT and raising M2 supply, hoping that effect will come after elections.
Concerning ECB, as can be seen, has historically suffered from masochism. If the Fed usually began to reduce the rate before the start of a recession, the ECB waits until the last minute and reduces the rate only after the recession has begun. Although recessions usually start at about the same time. Because it is not appropriate to improve financial conditions ahead of senior partners. And recent Lagarde speech points on the same moment.
All this stuff makes us think that until the Fed and US Treasury have reserves of liquidity, that let them to be relatively free on rate decisions, US Dollar will remain strong. Big people hints that the Fed could keep rate hike instead. At the same time, it starts burning inside the system, even the Fed's officials suggest that it will be impossible to defeat inflation any time soon and economy could fall earlier. Meantime, situation in EU economy is near the disaster and it is difficult to suggest factors that will help EU to perform better than the US. Any minor hint either on higher inflation in US or later rate cut, not speaking about no rate cut at all will crush EUR. Thus, currency we do not see any background for changing downside long-term tendency on EUR/USD.
So, we've got stunning inflation data in January - not only CPI, but different CPI Core indexes as we will show you below, hidden trick in PPI numbers that point on really tough situation in the US production sector. Today we have a lot to say about inflation topic. Actually recent data put the Fed and Yellen at the edge. They have to make some radical steps, although they are in checkmate situation. You can't raise rate because everything will collapse, and you can't cut it because of inflation will raise. So, they still will have to choose either red or blue pill.
If, of course, they will not make some trick move... I don't know about you guys, but personally I do not like recent mess - massive attack on D. Trump, some artificial legal claims against him, expelling him from voting lists, some curious announcements of national security hazards, Navalny's death, some explosions in Washington DC metro etc. I'm worry that this might be some preparation for emergency plan to cancel elections in 2024 or postpone it... And simultaneously resolve problems with the national debt in some radical way. Sounds a bit mystic, but I do not surprise to anything now...
Market overview
Let's see what market thinks about right now, what is the basic sentiment in the minds of investors...
The dollar rose to three-month peaks on Tuesday, after data showed U.S. inflation rose more than expected in January, reinforcing expectations that the Federal Reserve will hold interest rates steady in March. Tuesday's data showed that the Consumer Price Index (CPI) rose 0.3% on a monthly basis in January, above the 0.2% increase expected by economists polled by Reuters. On a year-on-year basis, it gained 3.1% versus the 2.9% estimated growth.
Excluding the volatile food and energy components, the CPI increased 0.4% last month after rising 0.3% in December. The core CPI advanced 3.9% year-on-year in January, matching December's increase.
"The key message from today's CPI is that it's slowing but less than expected," said Dec Mullarkey, managing director, at SLC Management in Boston. "The reading supports the Fed's decision to continue to wait for more assurance that inflation is well contained."
Federal funds futures on Tuesday had priced in no rate cut in March and a lower than 50% chance of easing in May, according LSEG's rate probability app. The first rate cut by the Fed is now expected to occur at the June meeting, with a roughly 80% probability. The market has also factored in about three rate cuts this year, in line with the Fed's rate forecasts, or what is called the "dot plot" released back in December.
The dollar retreated on Friday amid concerns about the strength of the U.S. economy after higher-than-expected producer prices raised expectations that the Federal Reserve will desist from cutting interest rates until at least the middle of the year. But data on Thursday for U.S. retail sales in January showed the sharpest drop in 10 months, giving some in the market pause as the report suggested slowing momentum in consumer spending as sales were revised lower in November and December too.
"The FX side of things tends to focus on the fact that there's still somewhat of a question mark when it comes to real activity in the U.S. economy," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto. The currency market's paring of gains was "a bit of a bizarre reaction," Rai said. It also might be positioning ahead of the long U.S. holiday weekend and a divergence with the Treasury market of how to interpret the economic data, he said.
U.S. markets will be closed on Monday for the Presidents' Day holiday.
The resilient U.S. labor market, stronger-than-expected economic growth and the inflation data indicate the dollar could be higher than it is, said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey. "I just see sideways trading or a slow grind higher for the dollar as a more likely scenario," Epstein said.
Single-family housing starts, which account for the bulk of homebuilding, dropped 4.7% to a seasonally adjusted annual rate of 1.004 million units last month. While Michigan Institute survey's reading of one-year inflation expectations edged up to 3.0% this month from 2.9% in January.
Hotter-than-expected inflation in January shows that the United States' path back to 2% inflation "may be a bumpy one," Fed Vice Chair for Supervision Michael Barr said on Wednesday, adding it was too early to be assured price stability will be restored without a significant blow to jobs or economic growth.
Deutsche Pfandbriefbank (PBB) shares fell more than 10% on Thursday and the price of its debt tumbled to a record low after S&P cut its credit rating over concerns about the lender's exposure to commercial real estate. Ratings agency S&P cut PBB's rating one notch to BBB-/A-3 from BBB/A-2 late on Wednesday with a negative outlook.
"The negative outlook reflects our view that weak (commercial real estate) markets, notably in the U.S., could increase the cost of risk in PBB's highly concentrated loan portfolio," S&P said.
Euro zone inflation is heading back towards the 2% target but the European Central Bank still needs more confirmation before it can cut rates, two influential policymakers said on Thursday. That message was echoed by Spanish central bank Governor Pablo Hernandez de Cos, who said the next move was a cut but there was no hurry.
"The latest data confirms the ongoing disinflation process and is expected to bring us gradually further down over 2024," ECB President Christine Lagarde told a European Parliament hearing in Brussels. "The current disinflationary process is expected to continue, but the Governing Council needs to be confident that it will lead us sustainably to our 2% target," Lagarde added, repeating the ECB's now standard message.
"Wage growth continues to be strong and is expected to become an increasingly important driver of inflation dynamics in the coming quarters, reflecting tight labour markets and workers’ demands for inflation compensation," Lagarde said. "The last thing that I would want to see is us making a hasty decision (only) to see inflation rise again and have to take more measures," Lagarde told a parliamentary hearing in Brussels.
Meantime, Europe's sluggish productivity growth may slow the fall in inflation to the European Central Bank's 2% target, ECB policymaker Isabel Schnabel said on Friday. Reaffirming her stance, Schnabel said this meant the ECB had to be "cautious" and not cut rates "prematurely" to avoid a second flare-up in inflation as happened in the 1970s.
"Persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms," she told an event in Florence, Italy. "This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target."
The International Monetary Fund is now "very confident" the global economy will see a soft landing, its managing director Kristalina Georgieva said on Monday, adding that interest rates would start coming down around mid year.
"We are very confident that the world economy is now poised for this soft landing we have been dreaming for," after some of the sharpest interest rate hikes in decades, Georgieva said at the World Governments Summit in Dubai. On the prospect of interest rates being cut in leading economies like the United States, she added: "I expect to see by mid year interest rates going in the direction inflation has been going on for the last year."
Close Look on Inflation
Once again, it is the hot topic. And this is logical. Because as the Fed as US Treasury has less and less time until election. Tension in economy is raising and becomes more and more difficult to keep smiling with bad game. Recent inflation report has few interesting point that were not widely shown in media. Here is few interesting pics:
So, in "market overview" part we've considered the common opinion. Numbers could delay the Fed decision on rate cut, but also they could be temporal, because January data usually volatile and subject to revision. IMF's K. Georgieva even suggests that first rate cut comes in summer. But if we take a look at some details, we will see very dangerous signals. Most important thing is divergence between classic PPI that shows price index for final products and "all commodities" PPI that shows prices on the first stage of production chain. First one shows inflation, while the 2nd one keep showin deflation.
The scale of deflation in the US industrial sector increased from -3.1% to -3.7%. The industrial sector in the United States is doing very badly, there is a steady decline. This months, by the way, the US Industrial Production has shown official decline first time in three months. A bit curious picture, industrial prices in the US are falling, and the PPI index is growing. How can this be? "All commodities PPI" shows the full volume of industrial goods is mainly the beginning of technological chains. There prices are falling, because no one needs semi-finished products. Producers try to cut prices to survive, production is becoming non-profitable and closing. At the same time the final (and, very likely, imported) goods, are growing in price. In other words, production in the US is falling, while imports are growing against the background of stimulated demand.
At the same time, retail sales are falling. The poor people have less money and they reduce purchases of expensive goods (the fall in demand is very high, higher than inflation). As we've mentioned last week, consumers activity is stagnating, setting the plateau, as savings stand at near lows.
The rise in consumer inflation over the past month is very serious, and the US monetary authorities should start doing something. It is already clear that it is impossible to soften monetary policy, that is, the rate will remain high, and the money supply will need to be reduced. The trouble is that the industry is already falling, as well as the level of sales, that is, the standard of living of the population. In the pre-election year, this is unacceptable for the ruling party. Other worrying bells are slowdown in QT programme and raising of M2 money supply for the first time in few months. Michigan inflation expectations also are raising a bit. Also pay attention to "super core" numbers that show strong growth. Inflation is migrating from one sector to another, which is typical for structural crisis.
February began with the fact that the US banking sector began to publish its final reports for 2023, judging by the figures, the situation in the States is not very good, some banks have already begun to talk about the need for cuts, and some have already openly announced their complete restructuring. Judging by the fact that the net profit of banks for 2023 fell by 45% (amounting to about $38 billion ), the situation in the sector is at least tense. Much of the sector's growth was eaten up by the fall of regional banks.
Banks received an unexpected blow in terms of bad loans: here the increase in reserves amounted to more than $5 billion , in addition, banks declared $4 billion in losses on securities. The total losses forced banks to sharply reduce employees; as a result, they laid off more than 45 thousand people in 2023. For some banks, 2023 is proving to be a year of big change. After another unprofitable year, Citi decided to completely change the principles of its work and plans to single-handedly lay off more than 20 thousand people by the end of 2026.
Based on the results of 2023, bank profitability increased by only 2% , and all this despite the fact that both the Government and the regulator actively helped the sector through direct loan lines. In the near future, however, these relief measures will end and banks will be left alone with their problems. NYCB's recent earnings release which sparked a dive of about 60% in its shares has particularly focused investors on combing through portfolios of regional banks, as small banks account for nearly 70% of all commercial real estate (CRE) loans outstanding, according to research from Apollo.
Conclusions:
It seems that The dollar system will be shaken by rate hikes in the “window” from February to June and it is a rhetoric question what will break first. In general, to prevent inflation from accelerating to 5% year-on-year by May-June, the Fed must now dramatically change its rhetoric not just to hawkish, but to vulture-like. But they won't do this. All the mainstream media have been buzzing their ears about a soft landing, and such a change in rhetoric will make this very landing absolutely hard. But they won’t be able to afford to lower the rate to support the economy. Then the end of the world dollar system. Therefore, it is important that the rhetoric be harsh enough for deflationary sentiment to rise, and not harsh enough for a panic collapse.
So the opening holes in the system will be filled with money, which will still add fuel to the fire of inflation, despite the fact that no one will reduce the rate until the last minute. And this is exactly what is needed to solve the problem with the same commercial real estate market.
The fact that record low inflation expectations are observed against the backdrop of actual inflation growth does not, in principle, indicate anything other than complete inadequacy and misunderstanding of the situation by the market.
By and large, it is only the beginning of the year, but the heating processes have begun. The market is high, everyone believes in an imminent reversal of the Fed’s policy. At first they expected it in March, after Powell’s speech they expected it in June. They will look at inflation dynamics for a couple of months and stop waiting altogether. In many ways, it is the “quick” policy reversal (and the outflow of capital from China) that is driving the growth of the stock market, so something may change here too. Based on how clumsily they started pumping up the story about the mental health of grandpa Biden, it is quite likely that it will go bad even before the elections. After all, criminal liability does not apply to the mentally ill and infirm.
The market is growing, largely due to the expectation of an imminent rate cut. If the rhetoric changes and the Fed makes it clear that the rate will not be reduced for another year or a year and a half, then market sentiment towards stocks will worsen. There are too many tension points in the system tied to a high rate. Same banks and real estate. So if the rhetoric changes now, this could lead to a powerful deflationary impulse - already from the demand side, and first inflation will slow down, and then everything will slide not just into a recession as a cyclical decline, but will simply collapse.
Until a recession and financial crisis sets in, that the system has been cleared of imbalances, any actions by the Fed will be a game of finding a balance between two scales - inflation and economic recession. And the longer this continues, the stronger the fall will be later. By far In fiscal year of 2024, the US government has received $1.58 trillion in revenue and spent $2.12 trillion. It means that the deficit amounted to $532 billion. At first glance, it seems that they are stable, but we have to compare it with tax income that budget gets:
17% now is spending on interest expenses. Every time US tax revenues declined, it meant the US was in or about to enter a recession. ️The last three times tax revenues fell this low was after the tech and credit bubble burst and after COVID.
Thus, whether the Fed will change the rhetoric or not - inflation will accelerate anyway , there is no need to create illusions that rhetoric can fix anything. It was in 2005 that Greenspan could “mumble” the markets and the rise in prices; now such a trick will no longer work.
The slowdown in inflation in 2023 was caused by (1) a fall in prices for oil and petroleum products (due to interventions from the SPR) and also (2) a relative fall in food prices - they rose too much in the previous period. Plus (3) the strengthening of the dollar had its effect.
But now the first, second and third are already in the past, so the only way is up, no matter what Powell says. And in the pre-election year, the lesser evil is not to focus attention once again, and it is best to simply not notice the problem for as long as possible. Besides, we already see that it seems that the Fed steps on a slippage way of money printing, with slowing QT and raising M2 supply, hoping that effect will come after elections.
Concerning ECB, as can be seen, has historically suffered from masochism. If the Fed usually began to reduce the rate before the start of a recession, the ECB waits until the last minute and reduces the rate only after the recession has begun. Although recessions usually start at about the same time. Because it is not appropriate to improve financial conditions ahead of senior partners. And recent Lagarde speech points on the same moment.
All this stuff makes us think that until the Fed and US Treasury have reserves of liquidity, that let them to be relatively free on rate decisions, US Dollar will remain strong. Big people hints that the Fed could keep rate hike instead. At the same time, it starts burning inside the system, even the Fed's officials suggest that it will be impossible to defeat inflation any time soon and economy could fall earlier. Meantime, situation in EU economy is near the disaster and it is difficult to suggest factors that will help EU to perform better than the US. Any minor hint either on higher inflation in US or later rate cut, not speaking about no rate cut at all will crush EUR. Thus, currency we do not see any background for changing downside long-term tendency on EUR/USD.