EUR / USD: Rising American inflation, Trump’s "kindness" and the phlegm of the dollar

Trading 14 août 2019 Donner votre avis

Yesterday, the euro-dollar pair was under pressure from many "bearish" factors, but the price could not fall below the support level of 1.1170 (the middle line of the Bollinger Bands indicator on the daily chart) - the downward impulse faded in this price area. By and large, the EUR/USD pair did not leave the wide-range flat despite the abundance of information drivers in favor of the dollar.

It is noteworthy that the American currency now enjoys support from both the external and internal fundamental backgrounds. The main news yesterday was the White House announcement saying that Washington is postponing the introduction of 10 percent duties on some Chinese goods, including computers, game consoles, children's toys, computer monitors, items of shoes and clothes, until December 15. Additional duties were supposed to take effect on September 1, but Trump "deigned" to postpone this fact until Catholic Christmas.

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The president argued that the White House "does not want to hurt buyers from the United States on the eve of Christmas holidays." It is worth noting here that Donald Trump is an experienced businessman and quite often applies the experience of entrepreneurship in political relations. For example, at the end of last year, just a week before the start of the next negotiations with China, he prudently "raised the rates", threatening to introduce new duties by $ 237 billion - from January 1. Thus, he expanded the range of upcoming negotiations, while duties not yet introduced became an element of "bargaining" with Xi Jinping.

In this case, Trump resorted to a similar maneuver, delaying the introduction of additional tariffs until the completion of the next stage of negotiations. Now, a peculiar Damocles sword will be hanging over the Chinese side in the form of 300 billion duties. The American president has repeatedly implemented a similar scheme and not only with the Chinese, but also with the Mexicans. And if Mexico almost backtracked, China turned out to be a "tough nut": Beijing responded to verbal threats with concrete actions, such as the release of yuan for the key mark of 7.00 and froze the purchase of American agricultural products. Therefore, two weeks before the "X-hour," the White House suddenly remembered the Americans and the Christmas decade.

Be that as it may, the fact remains that additional trading duties will not be introduced on September 1, and most likely this year. This fact returned the risk appetite to the market, supporting the US currency. It is also worth noting that the USD/CNY pair fell quite sharply from 7.064 to 7.014. This fact also indicates that the next period of the so-called "thaw" is beginning in relations between the US and China.

Support for the US currency was also provided by macroeconomic reports. The general consumer price index showed good dynamics, rising to 1.8% in annual terms (with a growth forecast of up to 1.7%) and to the level of 0.3% on a monthly basis. However, core inflation, excluding food and energy prices, showed more significant growth. In monthly terms, the indicator grew to 0.3%, and in annual terms, it jumped to 2.2%. This has been the strongest growth rate in the last 6 months. The increase in core inflation was primarily due to higher prices for clothes, rising prices for airline tickets, household goods, and health services.

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However, it was not without a fly in the ointment. The positive impression of this release was spoiled by a rather weak increase in earnings. Thus, the real average hourly wage grew by only 1.3% (the previous value was 1.5%), and the average weekly wage rose to 0.8% after the previous increase of 1.2%. Let me remind you that it was Jerome Powell who focused on the growth rate of salaries following the results of the last Fed meeting. According to regulator members, the July easing of monetary policy will allow to "disperse" this indicator.

It is worth noting that the dollar reacted very modestly to yesterday's events. Despite a slight strengthening throughout the market, along with the euro, the greenback remained in the price range of 1.1160-1.1240, in the region of its lower border. There are several reasons for this. Firstly, the growth of July inflation is unlikely to stop the Fed members from lowering the interest rate by 25 bp. in the fall, especially against the background of weak growth in wage levels. After yesterday's release, traders have not actually changed their minds regarding the prospects for easing of monetary policy parameters in Autumn. Hence, the dollar remains under background pressure. As for Trump's actions, his decision was predictable. As I said above, this is not the first time he has resorted to such methods, therefore, yesterday's announcement did not cause a stir in the market. Besides, the fact that the introduction of duties has been delayed does not solve the problem as a whole since both China and the United States continue to defend their positions. In the context of the upcoming presidential election, we can assume that the Chinese will "keep the defense" further.

Thus, if the EUR/USD bears do not consolidate below the 1.1160 mark in the near future, then the price will most likely return to the borders of the 12th figure. In general, the pair continues to trade within the price range of 1.1140-1.1260.

The material has been provided by InstaForex Company - www.instaforex.com

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