Since the beginning of the year, the US dollar weakened despite the rally in the stock markets, goods and raw materials, which were caused by two factors. On the one hand, the growth of hopes that the trade war between Washington and Beijing will stop or at least diminished and, on the other hand, there are clearer signals that the Fed intends to stop the process of raising interest rates and, possibly, further reducing its balance. Nonetheless, the state of uncertainty of such events remains to be the main limiting factor of investors.
The events of the beginning of the year showed that it was very difficult to reach an agreement between Americans and the Chinese and it is still unclear how it will finalize. Is it not the reason for the emergence of new differences between the parties? In general, the statements by the Fed and its individual members, including Fed chair Jerome Powell, who will particularly continue to be cautious about the changes in monetary policy. Although this reassured the markets, it did not radically change the situation and the reason for this was a clear slowdown in China's economic growth. The threat of a recession in Europe already aggravated by Brexit's problem this year and the first sign of a slowdown in economic growth in the United States itself.
The market is clearly balancing and weighs the pros and cons. It seems that a significant number of large market players are now out of the market as they watch the developments and tritely waiting.
In the foreign exchange market, all of these are expressed through the nervous movements of currency pairs, which react to published economic statistics, media reports and various gossip and rumors.
So when will it be long for a long time?
In our opinion, investors will begin to show activity only after reaching an agreement on trade between the PRC and the United States but it can be short-term, since, after that, all attention will be on Brexit and the emerging economic statistics. If Britain leaves the EU without an agreement, this may cause a deterioration of the situation in Europe as a whole, which can again be pulled by China and the States, who still hope to resist and traditionally sit in their Western hemisphere, receiving dividends from the European crisis.
If the overall picture improves in some magical way, then undoubtedly in this situation, the demand for risky assets including the stocks of companies, goods, and raw materials will grow. In this case, the dollar is likely to remain under pressure but not too strong against major currencies due to their weakness. Most likely in the short term, we can expect for a continuation of the overall lateral dynamics in the currency markets.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1295, remaining under pressure in anticipation of the outcome of the ECB meeting. If the pair overcome this level, it can continue its decline to 1.1250. At the same time, the absence of a new portion of the negative can lead to its local recovery to 1.1335.
The AUD/USD pair remains hostage to trade negotiations between the US and China. She has a recovery potential to 0.7065. If this mark stands, there is a probability of a reversal of the pair and the continuation of its decline to 0.6965.