Hi. EURUSD has been in an uptrend since November last year, but inflation differentials show that US inflation has been lower in this period. Why is this? My understanding is that the USD should have gained value, but it didn’t appartently.
Thanks.
welcome to the forum, aynose 
economics isn’t exactly my forte (i hope that’s one of my strengths as a trader, lol), but i’m interested enough to ask why that’s your understanding?
you’re surely not suggesting that currency A will gain value against currency B just because its country’s inflation-rate is the lower of the two?! (it would be lovely if that were so, of course - and would make profiting steadily from any kind of financial trading dead easy, wouldn’t it? though, then again, where would all the losers be, to pay out the winners, if it were as simple as that?!)
i think the gains/falls in relative values between any two currencies are determined by the imbalances between the relative buying and selling pressures for each in the interbank market, aren’t they?
interest-rate differentials (especially between two modern, somewhat similar economies like the US and Europe) can surely only play a very, very small role in determining those?
apologies in advance if i have completely misunderstood what you’re asking, here! 
1 Like
Yeah, that is what I was thinking. What else should be taken in consideration besides inflation and interest rates?
1 Like
lol, i’m out of my depth, there - others who understand more about fundamentals than i do will reply to you (probably tomorrow!)
1 Like
The value of a currency and its exchange rate depends on the demand for that currency. Many factors affect the demand for a currency, including the political stability of the nation, the balance of trade, inflation, and interest rates.
With the USA heavily involved in 2024 domestic election political issues, and the war in Ukraine, and Chinese technical restrictions, let alone Taiwan issues - all major fundamentals, then you could expect the currency to fall in value despite the Fed’s interest rate rises, and lower inflation.
I regret to say that these current financial markets are not at all simple to forecast.
1 Like
Can you please tell me what effect it will cause to the market? I always try to trade according to the flow of the market based on technical analysis.
Hi, for what it’s worth, here is my take on your question.
There are hundreds of factors that contribute to the strength of weakness of a currency. In terms of inflation and interest rates…
The standard aim for a countries inflation is 2%, this ensures that an economy will run smoothly and not overheat. When inflation is high (as it has been for the last 18 months) a country will raise interest rates in an attempt to curb spending and bring inflation down.
A higher interest rate creates more demand for a currency, therefore:
High inflation = high interest rate = strong currency.
(and vice versa).
The closer inflation gets to 2% increases the chances of a country reducing interest rates.
It is a bit more complicated than that but in a nutshell this is why the euro has been stronger than the dollar the since November (essentially because Europe has been playing catch up in raising interest rates).
I hope this helps. Best wishes
Fundamental analysis works only long-term due to lots on noise on lower timeframes, if you do scalping you can ignore that part of analysis.
First of all the uptrend that you are talking about could be just a correction on the bigger timeframe. If you look at MN then there is still a possibility the price will go down in the long run.
As for fundamental factors then I think you have to take into consideration the strength of the economy of the given currency.
The US economy is the most powerful one globally, but there are some signs that it will change over time. Maybe that’s the reason we see the weakening of the dollar these days.
Right now the market is not focussed on geo politics, long term economics - it’s single focus is inflation - and as always that focus’s time frame is what is up ahead.
Why inflation? - because CB’s are insisting on raising int rates to combat same - and the higher int rates are then the better return an investor gets.
Simple formula: higher US inflation = higher FED rates = better return on USD investments = higher USD demand = USD going up.
The market is always trying to second guess - so today NFP was a miss.
Simple formula: Lesser US employment = decreased consumer spending = less demand for goods = pressure on business to lower prices = decrease in inflation = FED saying ‘hmmm maybe ease up on these rate increases’
So today the USD falls.
Algos are not really that complex - always keep it simple.