FX.co ★ Trader's Diary: EURUSD on 12/04/2019, On populism and public debt

There is a lull in the market just before the storm and by morning the EURUSD is under the resistance level of 1.1100, however, there are not enough forces for a breakthrough and the course did not rollback. A daily chart of other major pairs - the pound, franc, and yen - indicates a willingness to continue the trend against the dollar.

Important US news about the employment report from ADP will be released at 16:15 today and at 18:00 is the news about the ISM services sector index. Thus, we wait for the news.

Meanwhile, two notable leaders, authoritarian Vladimir Putin and Donald Trump, who is clearly prone to authoritarianism, are seemingly acting to be populists. Leaving aside the Chinese leader Xi Jin Ping. In my opinion, the rapid growth of the economy has brought such high growth in all areas in recent decades that populism simply does not need to speak.

Oddly enough, I can argue that Putin is not a populist at all. In a difficult economic situation, a populist will certainly follow the easy path, as it will seem to him. For instance, the weakening public finances, printing money and inflating government spending. With Putin, we see the opposite picture, the stagnation in the Russian economy lasted for 6 years, incomes of the population is still at the level of 10 years ago. At the same time, the Putin government does not weaken financial conditions, but, on the contrary, tightens it. They sharply increased their retirement age, and this deprived the population of significant amounts of payments. The VAT tax increased by 2%, this is from 18% to 20%, though it might seem that 2% is nothing, on a national scale this is more than the effect of raising the retirement age. As a result, the growth of budget revenues for the year is more than 17% while the growth of profits of large businesses is more than 6% and 0% for the population growth income. At the same time, the reserves of the Central Bank of Russia are at their highest since 2009.

No, Putin is not a populist, he is the opposite. His financial policy is rigid and against the masses. A marked weakening of financial conditions could help the Russian economy, but Putin probably forever remembers the crisis that took place on August 17, 1998, and wants to protect himself as much as possible.

For Trump, the matter is different. Despite the continued growth of the US economy, where growth has been quite strong since the spring of 2009, Trump has not taken any measures to reduce the budget deficit and huge public debt. The US national debt reached almost 22 trillion dollars, with US GDP of 19.4 trillion dollars. Two factors save us from serious problems with the US debt, these are one, the status of the dollar as a world currency. It is important to know that all US debt is denominated in dollars. And then two, ultra-low debt service rates, just imagine that the United States will have to pay a state debt. For example, at a rate of 5%, if you look at history over several decades this means that 6% of US GDP will have to be paid for debt servicing. With a budget of 25% of GDP, servicing a public debt at a 5% rate will gobble up 25% of the budget. Nevertheless, Trump, despite a strong economy, does not try to reduce debt but increases it.

In a financial sense, this is outright populism. And this is a very risky policy in the long run.

But while the whole world believes in the power of the United States and the power of the dollar, this does not play a role in the market.

We keep buying euros from 1.1035, stop at 1.0990.