The important event ahead is the US Federal Reserve meeting this week and we can definitely say that there will be an interest rate cut there. What is not certain is whether it will be 50 or 25. Let me first talk about why this is important for those who do not know. Now 50 is a big step and when we look at it historically, there has generally been a recession in American history after a 50 rate cut. However, it has been possible to overcome a 25 rate cut without a recession. Now, that is why a significant majority of the market may price it if the first cut comes with 50, wondering if the FED sees a recession possibility that we do not see, I will talk about that too. Now, what will be the pricing of this. In other words, what will be the pricing of a recession coming. Because this is important, now look, one of the most important recession indicators in previous periods was the 2-year 10-year spread and now it is said that this is not that important anymore. In fact, it is said that it is not an indicator, I do not agree, this is still an indicator. Because this shows the difference between the market's view of the future and the current situation.
Therefore, the fact that it has gone negative and now it has gone positive, this 10-year 2-year spread, shows that we are getting a little closer to a recession. The different part is that in the past, when there were such situations, there was no money. But now there is money in America. There is money floating around and people are parking it in repo, they are parking it in short-term bonds. After seeing the situation of the FED and the situation of economic growth, that money will go where it will go, but there is money. Therefore, even if there is a recession, I think it will happen, by the way, let me state that. In other words, a technical recession, a condition that can be named, will occur.
But I don't think it will be an environment like in 2008, where everything is in turmoil, unemployment is through the roof, or a situation like in 2019 where production stops completely. Life will still go on, but when we look at various criteria, we will say there is a recession. However, when you look at America, you see that employment is deteriorating little by little. We see that unemployment is increasing. People are starting to become unemployed. Now the only remaining criterion there, the only remaining criterion to say there is a recession is that economic growth is negative. I don't really think so maybe it would be hard to name it but ultimately I expect a 25 basis point reduction from the Fed this week.
It will probably end this year with 3 reductions, 75 basis points, provided that it is 25 - 25 - 25. However, I think that the speed of interest rate reductions next year will be much different compared to this year. It seems to be much faster. The reason is this; the deterioration in the employment market is just showing itself. In other words, in the speeches of the FED speakers after Jackson Hall in the last 1-2 months, we understand that issues related to the employment market will start to become a source of concern. Therefore, we are just at the beginning of that work. After this, there will also be restrictions on the spending of people who lose their jobs. Then there will be a bit of a growth problem. Let's say this will probably show itself in the first quarter or first half of the year. Therefore, next year will be a bit more difficult in terms of capital markets in America.
The biggest concern about Europe is the emergence of the Draghi report. Mario Draghi is a man who came from the center of Europe and has been at the top of every financial and political administration. We need to value what he says and according to what he says, Europe will fall apart in 2040-2050 if the things he says are not done. The part he mentions also talks about incredible investments. Moreover, there is something like this: you can't find all of the money, but you can find some of it by doing something like this and supporting it. By the way, the Germans are very against this business, the joint bond issue. Because that's how you will create the financing. The Germans say; Well, you say joint bond, I'm very rich, you don't have that much money, we both get into debt, everyone actually knows me, I pay the debt, you don't pay anything. The Germans are after this, they will not allow this.
Now, the other issue is actually this is actually about production, but the more important issue is the demographic structure. There is a seriously aging population in Europe and the new generation is not enough in numbers to replace the aging population. Now there is a decreasing workforce there. With Artificial Intelligence, there will be less need for workforce. But in the end, human resources are always needed and they cannot meet this need. There are people coming from various countries, from Eastern countries. But they are always a problem. There are already few qualified personnel. After all, when you look at it, there is a very serious need for human resources there. Because they do not have them. The faster they provide this, the better. The slower they are, the worse it is for Europe.
After all, both in terms of production and who you will sell what you produce to. In other words, there is no one around or no one who has worked and has money. Who are you going to sell the car to, in other words, you are producing a great electric Mercedes and who is going to buy it in Europe. That is why the European side is still very problematic. This is also in the coming years, I am definitely not saying this right away, you should not misunderstand this, but we will see that very serious problems may arise for the euro currency. Morgan Stanley expects a decline towards 1.02, towards the end of the year, and has given these as the reasons. Of course, there is also the interest rate cut story. Interest rate cuts will continue more rapidly in Europe, plus these demographic developments and domestic political developments, geopolitical developments.
However, I would be surprised if these types of things, long-term stories are priced in immediately. The interest rate side may be effective here. In fact, on the interest rate side, it has been understood that the European Central Bank will not cut interest rates as quickly as expected 2 months ago. In fact, as of now, the next interest rate cut is expected to be in December. Now, if you look at it, there is one expected reduction after this, if you look at the FED, there will be 3 or maybe 4, some say a full point, 100 basis points. In other words, it is not very difficult to predict which currency will be weaker in a period when interest rates have decreased so much, in a process where it is expected to decrease. These are developed country currencies, whichever has the higher interest rate will shift to that side. Yes, the US interest rate is higher, but there is a decreasing process after all. Whichever will decrease faster will remain weaker.
I do not expect 102 in DXY until the end of the year. One of the things I always look at, especially when trying to determine the direction of Euro - Dollar, is that the market, central banks are waiting for who will lift the most interest rate cuts in the next 2-3 months for both the FED and the European Central Bank. For example, let's say they are expecting the FED to reduce it more, then I would look to sell the Dollar and buy the Euro. It has been decreasing in recent days, but there was an extra pricing that went to 1.12. So if this changes tomorrow, I will look at pricing accordingly. But, it should not be forgotten that the market is pricing this factor, the expectation, very seriously, not a realization. It is pricing its money according to whoever is expecting to cut or increase interest rates more for 2-3 meetings in a 2-3 month period.
Frankly, I did not think that gold would exceed 2530s. But there was a rapid movement here with the clarification of the interest rate cut. When this region was passed, we almost approached the 2600 level. It is useful to pay attention to the Bollinger peak here. In all its movements, it reaches the 250 Bollinger peak of the last period, the correction starts, after the correction again, the rise is tested from the 250 Bollinger peak in the same way. The correction from the peak here coincided with the 2600s in particular. If it goes above 2600s and starts to close, it will want to see higher levels comfortably. But if the 2600s start to struggle, I will expect a correction on the gold side. Especially here, the FED's interest rate cut will clarify, the upcoming statements will clarify. An expectation-over correction may come. It is useful to pay attention to this in particular. If the price does not settle above 2600, we may experience a correction with the FED decision. If there is no extra positive statement, if there is no statement that will affect it positively, it is useful to pay attention to that as well.
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