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24.05.2019 04:16 PM
Who is stronger, the euro or the dollar?

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Brilliant campaigns of "bears" on EUR/USD ended in failure. The first sign of their weakness was their inability to anchor below the support level of $1.13. And it all started so well. Why the euro bounced up while the dollar was thrown off its pedestal. After all, in economic terms, the positions of currencies are almost equal – both countries are predicted to slow growth.

The American policy of protectionism is a serious blow to competitors, but at the same time, it goes to the States themselves. The recent series of introduced tariffs will cost US consumers $106 billion a year, the New York Federal Reserve Bank estimated.

The situation was aggravated by the disappointing statistics on the real estate market and business activity. Rates on 2-year US government securities deepened to a 15-month bottom, "ten-year" fell to 19-month lows, the yield curve went into the red zone, and the risks of lowering the Fed rate this year jumped to 78% from 68% earlier. In this situation, the dollar is difficult to stay afloat, not to mention the growth.

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As for the euro, the continued decline in purchasing managers' indices in the manufacturing sector of Germany and the eurozone, together with a serious fall in the business climate from the IFO, hit the quotes powerfully. The ECB added fuel to the fire. Financial officials predicted a long-term slowdown in eurozone GDP and low inflation expectations.

It is worth noting that, in a panic selling the euro, very few people noticed the published positive. Thus, PMI in the services sector, which accounts for 73% of the euroblock economy, is still stable. Business activity in France jumped to its highest level in six months. Another important point: the members of the European Central Bank believe that negative rates will negatively affect the financial results of the banking system. It is possible that the ECB will raise them and at the same time provide a generous LTRO package. Isn't it a bullish factor for EUR/USD?

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Indeed, economic growth in the eurozone may slow down in the second quarter, but America is far from "chocolate". According to estimates of the leading indicator from the Atlanta Fed, the US GDP growth rate in the period from April to June will be reduced to 1.2% from 3.2%. Quite perceptible. The slogan "America First!" and the accompanying policy seems to have the opposite effect, and Donald Trump cuts the branch on which he sits. Next year, voters are unlikely to be impressed by the slow development of the economy.

By the way, Trump, looking at the fall of the S&P 500, announced his intention to support local farmers affected by trade wars, and announced the amount. This year, it will be increased to $16 billion from $12 billion earlier. The owner of the White House also made it clear that the Chinese technology giant Huawei could become a bargaining chip in the protracted dispute between the United States and China. Yes, the company's activity threatens US national security, but the President is ready to withdraw sanctions for the sake of signing an agreement with China.

Now, the market is dominated by anti-risk sentiment. The American economy is causing concern this time. The fall of the S&P 500, as expected, increased the demand for protective assets – yen, franc, and gold.

Natalya Andreeva,
Analytical expert of InstaForex
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