USD struggles amid volatility reduction

Trading 15 mar 2019 Donner votre avis

The US-China trade war is entering a new phase. At the session of the National People's Congress, a law on foreign investments was adopted aiming at increase of transparency in the use of foreign capital as well as the investment's growth. At the same time, there is more and more evidence that China is not in a hurry to complete the trade negotiations. The Trump-Xi meeting has been postponed indefinitely.

As recently reported by the House Budget Committee (CBO), the budget deficit has increased by $146 billion relative to 2018 in the first 5 months of the current fiscal year. The revenue dropped due to the 2017 tax act, while Trump's tariff war added to the budget only 22 billion. Obviously, it was not enough considering the skyrocketing deficit.

Investors are awaiting to see the outcome of the US-China trade war and the outlook for the US economy for the current year. In the meantime, they see no reasons to hike the Fed's interest rate that has remained unchanged since January. Thus, Fed Funds Futures show an absolute inability to tighten the monetary policy in the current year. Moreover, there is a growing possibility of the rate's reduction by 0.25% in late 2019 amid expectations of recession in the next 12 months.

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The US administration has to find a way to top up the budget as soon as possible. However, there are no domestic resources for that. The EU has already made it clear that it will firmly defend its interests, while an attempt to unilaterally impose duties on European cars will lead to the immediate introduction of counter measures amounting up to 300 billion.

The greenback could take advantage of the weakened euro after the ECB announced the launch of the third TLTRO wave in September. Yet, it struggles to firm.

EURUSD

The pace of consumer inflation's growth in Germany is slowing down. The CPI rose by 0.4% in February after an upturn of 0.5% a month earlier. Annually, the index improved by 1.5% in February against an increase of 1.6% in January. Meanwhile, both indicators were expected to remain unchanged. A slowdown in inflation indicates that the economic problems that have covered the eurozone in 2018 are still far from being resolved.

The IFO Institute lowered its forecast of Germany's GDP growth to 0.6% versus 1.4% in 2018 as the rise of the largest European economy has come to its end. The index plummeted amid a number of production issues in key industrial sectors of Germany. Basically, the eurozone's GDP is anticipated to advance by 1% failing to match the previous year's rise of 1.8%.

According to the IFO, Germany's industry took the brunt of all the problems that covered Europe. Uncertainty on customs duties, Brexit, Italy's economic issues have reduced the capacity of sales markets for Germany and held back the recovery of the export-oriented industry. Only sectors aiming for the domestic market kept the country's economy going.

In general, the IFO's conclusion is pessimistic. Despite the gradual recovery of Germany's indicies, a global economic slowdown and low demand for German exports will lead to the recession in the country's economy. In the meantime, the IFO assumes that the EU-UK divorce will be civilized and will not create barriers to cross-border trade, while the United States will not escalate the trade conflict with the EU. However, it is not likely.

The eurozone's inflation data is due today. Forecasts are neutral. The euro has no clear movement, it is anticipated to trade sideways. Resistance at 1.1353 is formed by the upper boundary of the descending channel. Support is at 1.1270-75. In case of a breakout, the quote might move to 1.1234, yet, such an outcome seems to be unlikely.

GBPUSD

The high volatility of the pound is over as the UK Parliament finally made up its mind towards Brexit. It is expected to trade in a range today. There is no reason to retest 1.3383, support levels are at 1.3095 and 1.3010. Nontheless, the pound will most likely stay within 1.3208-1.3295.

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

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