EUR/USD: the foreign exchange market is in no hurry to indulge in trading euphoria, the dollar is only happy about this

Trading 07 nov 2019 Donner votre avis

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Washington and Beijing continue to show rapprochement in trade negotiations. Against this background, the Japanese Nikkei 225 and the European Euro Stoxx 50 reached many-month peaks, while the main US indices updated record highs.

Although the US dollar often goes in the opposite direction from the stock markets, it nevertheless managed to strengthen.

Apparently, the foreign exchange market behaves noticeably more cautiously than the stock market, in no hurry to fall into euphoria from headlines about a trade ceasefire.

Signing a trade deal with China would be a triumph for Donald Trump, and perhaps he is willing to pay a price for it. According to media reports, the White House is considering the possibility of canceling duties on Chinese goods worth $112 billion. In exchange, Washington expects Beijing to take additional measures to protect intellectual property. It is not yet clear whether China is ready to truly comply with US requirements regarding this issue. Previously, intellectual property was a stumbling block in negotiations between the parties. Therefore, currency traders prefer to remain cautious in anticipation of clarity regarding the prospects for a trade agreement between the US and China.

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Last month, the greenback was actively selling out on fears that trade conflicts would slow down the US economy and force the Federal Reserve to cut interest rates more than three times. However, data on US GDP for the third quarter, as well as October releases on employment and business activity in the country were better than expected. In addition, the United States trade deficit has narrowed to its lowest level in the past five months.

In September, US exports to China decreased by $1 billion, to $9 billion, and imports - by $1.9 billion, to $37 billion. As a result, the negative balance of America's foreign trade with China decreased to $28 billion, reaching the lowest level since 2016 of the year. In general, the supply of goods from the United States abroad fell by 0.9% in September compared to the previous month, and the purchase of foreign goods by 1.7%. Based on the analysis of September indicators, it can be assumed that the state of US foreign trade is improving. In addition, an increase in net exports is a good sign for US GDP.

Greenback fans are optimistic about the growth of business activity in the US non-manufacturing sector. In October, the indicator was 54.7 points, which exceeded analysts' expectations (53.5 points).

Meanwhile, the understanding that fears for the fate of the US economy have been exaggerated contributes to the return of bears to the EUR/USD market.

The main drivers of the growth of the main currency pair last month were the reduction of the difference in the economic growth of the United States and the eurozone, the limited potential for easing monetary policy by the ECB, the reduction of the chances of "hard" Brexit to a minimum and the de-escalation of the Washington and Beijing trade war. The first factor in favor of the euro is not working now, the second has already been won back, political uncertainty in the UK in connection with the early elections remains, and the ceasefire in the US-China trade war seems shaky.

Sellers were able to return EUR/USD quotes to support at 1.1070. If the pair can stay above this level, it will form the lower boundary of the medium-term consolidation range. If not, it will continue to fall to 1.0965–1.0975.

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

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