On Monday in the United States and Great Britain there were long weekends due to holidays. In the foreign exchange market, activity was noticeably lower than normal due to the lack of a large number of American investors and foreign investors who work through American professional market participants. But, despite this, the US dollar on the first day of the new week continued to grow smoothly against major currencies, with the exception of the yen, which again was bought as a safe haven. The reasons for this are enough now.
Demand of market players for defensive assets rose sharply after US President Donald Trump canceled a meeting with North Korean leader Kim Jong-Un and announced the imposition of new sanctions against Iran after exiting the "nuclear deal". The growing geopolitical tension that the US produces through its president is the reason for the growing demand of market players for defensive assets-such as the Japanese yen, the Swiss franc, to some extent gold and, of course, the government bonds of economically developed countries, among which is the American treasury.
If the defensive assets continue to rally, then the euro and the sterling will remain under pressure. The single currency is adversely affected by political problems in Spain and Italy. The new government on the Apennine peninsula is referred to as 'Eurosceptics', who are in favor of revising the country's participation in the EU. The political crisis undermines the country's political foundations not only in Italy but also in Spain and also jolts the European Union in the wake of Brexit, which led on Monday to the collapse of the local stock market and the rise in demand for government bonds.
These events adversely affect the single European currency. And as for Britain, the unresolved situation around the conditions for the country's withdrawal from the EU continues to weaken the sterling rate.
Based on this, we believe that in the short term, the euro and the British pound will remain under pressure against the US dollar, which is growing not only on the weaknesses of its counterparties on Forex, but also on the wave of expectations that the Fed will continue the cycle of raising interest rates.
Forecast of the day:
The EURUSD remains in the short-term downward trend. It is likely that it will continue to decline on the wave of expectations of an increase in interest rates in the US next month and political problems that come from Italy. On this wave, the pair may fall to 1.1550 after overcoming the 1.1600 mark.
The GBPUSD is trading above 1.3295. It can continue to fall to 1.3225 after overcoming this level.