empty
 
 
09.06.2018 01:22 AM
The dollar is losing steam

When in the late 1990s Alan Greenspan unexpectedly reduced the Federal funds rate in response to the increased international risks, rather than raising it to control inflation, this eventually led to overheating and recession. Janet Yellen also postponed the tightening of monetary policy in 2016 due to a fire in China's markets and Brexit's unexpected support at a referendum in Britain. Currently, Jerome Powell and Mario Draghi are ready to turn a blind eye to the slowdown of the US and European economies in the first quarter. The difference is that the US is at the final stage of the economic cycle, and the eurozone is still far from it.

Dynamics of US inflation and Fed rates

This image is no longer relevant

Less than six months, the theme of convergence in the monetary policy of the Fed and the ECB returned to the markets.Chief economist Peter Praet said that the Governing Council will consider the completion of QE in 2018 at the June meeting. The markets expected this to happen in July. The shift in timing for the earlier period prompted investors to recall the events of the second half of 2017. Then the most rapid growth of European GDP, at least for 10 years, the victory of Emmanuel Macron over eurosceptics in France and rumors about the ECB's refusal from the quantitative easing program became the guiding stars of the bulls on EUR/USD.

Dynamics of EUR/USD and European GDP

This image is no longer relevant

Theoretically, the Italian political crisis and the sluggish start of the Eurozone in 2018 could discourage the European Central Bank's desire to normalize monetary policy. But the regulator wrote off the slowdown in GDP for bad weather, strikes and an epidemic of flu. It sincerely believes that during the rest of the year the economy will rise from its knees. And these conditions of finding the euro in the comfort zone (below $1.2) allows the representatives of the Governing Council to safely talk about the completion of QE. Yes, there is Italy, but does anyone seriously believe that this republic will leave the currency block?

Is it possible to consider the completion of the quantitative easing program in the eurozone and the 4 rate increases for federal funds in the New Equivalent Events? If the stages of the business cycle were the same, then a negative answer would follow. And since the dollar since 2013 began to pawn in quotes associated with the currency pairs normalization factor. In general, the monetary tightening is already priced in. But the rejection of the European QE and the forthcoming increase in the deposit rate and refinancing rates in 2019 are not yet fully realized. Hence the desire of investors to jump into the last car of the EUR/USD train going upward. Moreover, 35 out of 60 Reuters experts believe that the USD index rally will not last longer than three months. Ten of them think it will last for a month.

Technically, the formation of the pin bar cooled the offensive rise of the "bulls" in the euro. "Bears" went into a counterattack in order to restore the downward short-term trend. However, to begin with, they need to dissuade buyers from the zone 1.162-1.17, that their ideas are not worth anything.

EUR/USD, daily chart

This image is no longer relevant

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback