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Exchange Rates 20.09.2019 analysis

Traders continue to win back the results of the meetings of the leading central banks and wait for news from the trading front.

A preparatory round of US-China trade talks started yesterday.

During the two-day discussions, the parties should pave the way for high-level negotiations between the parties, scheduled for early October.

Investors were encouraged that White House chief economic adviser Larry Kudlow said in an interview with Fox Business that he sees a slight improvement in sentiment at the meeting of trade representatives of both countries.

The US dollar fell by 0.22% against the basket of major currencies, despite the words of the head of the Fed Jerome Powell that the regulator faces a situation that can be resolved and corrected by taking advantage of moderate adjustments to the federal funds rate.

"The weakness of the greenback after the Federal Reserve lowered its interest rate by 0.25% on Wednesday is the main factor in the growth of EUR/USD," analysts at Commerzbank noted.

It is obvious that the eurozone economy looks weaker than the US, the European debt market rates are lower than in the US, but there is a lot of negativity inherent in the euro. Many "bearish" factors, including QE, have already been played. Reducing tensions in trade relations between Washington and Beijing, as well as the likelihood of disordered Brexit allow investors to close the "shorts" on the main currency pair.

The expected large-scale monetary stimulus from the ECB turned out to be a drop in the ocean. Experts predicted that it will be about €20-100 billion, and in fact – €3.4 billion.

If we add to this the continuing demand for liquidity from American banks, which, contrary to statements by Fed Chairman J. Powell, increases the risks of resuscitation of the quantitative easing program, then the movement of EUR/USD to the upper limit of the consolidation range of 1.095-1.1095 seems logical. However, will the principle of "sell on rumors, buy on facts" be enough for the main currency pair to be able to enter the operational space?

"The modest reaction of the US dollar to the "hawkish" statement of the Fed emphasizes the fact that it is not the US Central Bank that controls the sentiment on the USD, but the trade dispute between Washington and Beijing. As for the EUR/USD pair, steady growth is unlikely at the moment. The signals that ECB President Mario Draghi gave to the markets last week undoubtedly set a tougher "bottom" for EUR/USD in the area of 1.10, however, for a stable rally, the pair will need, firstly, a trade agreement between the US and China, secondly, fiscal stimulus provided by leading European countries in addition to the ECB measures," says by Citigroup experts.

Performed by Viktor Isakov,
Analytical expert
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