FX.co ★ Markets are scared by the prospect of a recession in the US

The ambiguous economic data from the United States released on Tuesday put pressure on local stock indexes. It seems that we have repeatedly pointed out earlier about the realization by investors that the American economy is showing signals of growth inhibition with the beginning is clearly manifested.

The presented values of the index of business activity in the services sector showed a decline in the indicator to 56.0 points from 56.2 points. But at the same time, the business activity index in the non-manufacturing sector grew noticeably to 59.7 points in February against the January value of 56.7 points. The December value of sales of new housing has also grown dramatically to 621,000 up from 599,000 in the previous period based on the review and the forecast of an increase to 600,000.

The question of why arises against such a positive background. Generally, the main US stock indices were in the red and the dollar received support. In our opinion, there may be such an explanation.

The remarkable growth of some economic indicators seems to be a residual from economic growth, which was strengthened by the tax reform undertaken by Donald Trump after taking office. The slowdown in global economic growth, which is currently observed, will definitely hit the US economy. That gap between the real state of affairs and the value of assets is unlikely to be compensated, since, on the one hand, the Fed still continues to squeeze liquidity and reduces its balance sheet, despite its promise to stop the process of raising interest rates. On the other hand, there are clear signs slowing the growth of the American economy but a high probability of plunging into a recession. This scares investors and makes them reduce the value of risky assets, which is on this wave of the US dollar and gets support.

In addition, the expectation of a denouement with Brexit and the first signals of the coming recession in Europe exert strong pressure on the euro. On this wave, the main currency pair has turned and went down but has shown investors the propensity to buy risk in the past decade.

Observing the overall picture, we can say that negative sentiment prevails in the markets now, which contribute to the growth in demand for defensive assets, including the US dollar.

Forecast of the day:

The EUR/USD pair is trading above the level of 1.1290, remaining under pressure against the background of the approaching Brexit and investors' withdrawal from risk due to fears of declining eurozone economy into recession. If the pair overcome this mark, it can continue its descend to 1.1250.

The USD/JPY pair is consolidating in a narrow range, which was supported by the demand for defensive assets including the Japanese currency. If the pair holds above the level of 111.70 and rises above the level of 112.00, it will have growth potential to 112.45.