When Fear gives way to Greed in the market, the US dollar has a hard time. The escalation of the armed conflict in Ukraine and the reckless decision of the new British government to cut taxes has accelerated the flight of investors to safe-haven assets. Once the Bank of England calmed the markets, the Reserve Bank of Australia raised rates less than expected, and Russia responded with silence to the advances of its adversary, rising global risk appetite inspired EURUSD bulls to counterattack.

But in early October, the economic landscape was as follows: Central banks, led by the Fed, are aggressively raising borrowing costs en masse, which ultimately drives the global economy to its knees. More precisely, before the recession. Expectations of its imminent onset increase the demand for safe haven assets. And first of all, the US dollar. However, if the rate of monetary restriction has reached its limit and will gradually decrease, isn't it time to move from Fear to Greed? Stocks and bonds look cheap. If you buy them now, you can earn very decent money.

Dynamics of Nasdaq Composite and US Bond Yields

The Reserve Bank of Australia was the first to signal that a flock of central banks was about to hit the brakes. It raised the cash rate not by the 50 bps predicted by Bloomberg experts, but only by 25 bps. This was one of the reasons for the decrease in the expectations of the futures market for the federal funds rate. Now derivatives expect the Fed to raise it by 125 bps by March. This is less than 165 bps after the September FOMC meeting.

Another reason was the slowdown in business activity in the US manufacturing sector to the very bottom since May 2020. The stock market operates in the "bad news for the economy—good news for stock indices" mode, so the PMI decline gave rise to a relief rally.

The British pound continues to support the "bulls" on EURUSD, growing for the sixth day in a row. The Treasury's intention not to reduce the income tax on the wealthiest residents of the UK and the reanimation of QE by the Bank of England returned GBPUSD quotes above the levels at which UK Finace Minister Kwasi Kwarteng announced the fiscal stimulus program.

At the same time, large banks are still skeptical about the prospects of sterling. Standard Chartered and Royal Bank of Canada expect it to collapse against the US dollar by 10% by the end of 2022 as government missteps have undermined confidence in the currency. Nomura and Morgan Stanley are talking about parity in the GBPUSD pair.

In my opinion, the sterling correction has gone too far. As is the rise in global risk appetite. It is not certain that the Fed will follow the path of the RBA and slow down the rate of monetary restriction. FOMC members unanimously say that the work is not yet done.

Technically, there is a pullback to the downward trend on the EURUSD daily chart. Rebounds from resistances at 0.995, 1 and 1.005 should be used to form short positions on the euro against the US dollar.