The dollar wiped its nose to all skeptics

Trading 26 juil 2019 Donner votre avis

Too much bad news. So, you can call the results of the week to July 26 for the single European currency. The decline in business activity in the German manufacturing sector to the lowest level in the last seven years, the IMF's decline in forecasts of global GDP growth to 3.2%, an increase in the probability of a disorderly Brexit, Mario Draghi's hints at lowering the deposit rate and restarting QE. What could be worse for EUR/USD bulls? When US GDP at the end of the five-day period pleased traders, it became clear that the attempts of fans of the euro to counterattack, most likely, doomed to failure. The US dollar may be weak, but it is not so weak as to retreat before weakened macroeconomic statistics, political risks, and the ECB's intentions to follow the path of monetary expansion.

The link between global GDP and German exports is very strong. The slower the global economy grows, the worse Germany gets. It is not surprising if the share of deliveries abroad from this country is 47% of the gross domestic product. In this regard, an increase of 3.2% compared to +3.6% in 2018 and + 3.8% in 2017 causes irreparable damage to the Germans. According to BloombergEconomics, global GDP will slow to 2.6% in the second quarter.

Mario Draghi did not find it difficult to implement his ideas to weaken monetary policy, as the main opponents, "hawks", are tied with Germany. If its economy feels unimportant, even such an ardent opponent QE as the President of the Bundesbank, Jens Weidmann, becomes meek as a lamb. The head of the ECB said that the deposit rate will be at -0.4% or lower, and the central bank will begin to consider the content and scope of QE. Previously, the words "or lower" was not possible, so the signal of a weakening of monetary policy sounded in September.

European debt bonds responded by falling yields, and in Germany and in Greece – to historically low levels. At the same time, the cost of borrowing decreased, and the euro finally took away from the yen the status of the main funding currency. The cost of carry-trade in the regional currency is now lower than that of the "Japanese".

Dynamics of the value of Japanese and European borrowings


What can it do? For example, if the Fed does not aggressively weaken monetary policy, the correction of US stock indices will lead to the closure of positions by players on the difference. The euro from the rollback of the S&P500 is likely to suffer more than the yen.

The key events of the week by August 2 will be the FOMC meeting and the release of US labor market data for July. After strong US GDP statistics (2.1% growth with forecasts of +1.8% q/q), the derivatives market reduced the probability of federal funds rate cuts by 50 basis points in July to 19%. The Fed can afford not to use monetary expansion at all, which together with strong employment will make the dollar a favorite on Forex. However, in this scenario, the wrath of the President of the United States will be terrible.

Technically, the exit of EUR/USD limits of the diamond is a bad sign for the "bulls". They try to counterattack from the level of 88.6% and 113% of the XC pattern "Shark" wave, however, the chances of success are not yet impressive.

The material has been provided by InstaForex Company -

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