From economics to politics. If the focus of investors' attention in the week of September 24 were central banks led by the Fed, then at the turn of the first and second months of autumn, several political decisions will appear on the radar that can seriously affect financial markets. Will the Beijing officials allow Evergrande to default and go along the path of nationalizing the company so that the infection does not spread to the entire real estate sector? Will Republicans in the Senate block a House verdict to suspend the national debt ceiling until December 2022? What are the results of the parliamentary elections in Germany? Politics will rule the show. The markets are a little tired of the economy.
Evergrande is China in miniature. Both had an insatiable thirst for loans. Both eventually realized the inadequacy of their own strategy. The humor lies in the fact that the fall of the giant of the real estate market of China is the result of the repression of Beijing officials. It is possible that the default will still take place, but China is unlikely to allow the infection to spread to the entire economy. The fact that the slowdown in China's GDP began before the Evergrande story allows us to count on new monetary incentives from the PBOC, which is fraught with a weakening of the yuan and the euro.
The issue with the US debt ceiling will most likely be resolved only by the end of October. In the middle of the second month of autumn, the government will run out of money, and lawmakers do not like it when government officials stop paying salaries. So no matter how loud the cries of Democrats and Republicans are, they are destined to end this farce. As a result, the US Treasury will be allowed to increase the debt burden, and the volume of net bond issuance will increase to $700 billion, returning to the figures of the first quarter. This is fraught with an increase in the yield of debt obligations and a strengthening of the US dollar. Moreover, the Fed will begin to taper QE by that time.
Dynamics of bond issue and their purchases within QE
As for the parliamentary elections in Germany, six months ago this seemed to be an important driver of the euro's growth. They say that in the leading economy of the eurozone, there will be a departure from fiscal consolidation programs, and an increase in government spending will increase the likelihood of GDP acceleration. In fact, it is unlikely that any party will be able to seize power alone, and it will take time to create a coalition. In this regard, the factor of the German elections should be considered as neutral for the EUR/USD.
The releases of data on US business activity and European inflation stand out from the events of the economic calendar for the week of October 1, but they are unlikely to seriously affect the balance of power in the main currency pair. Economic growth in the US has left its peak behind, and the high CPI values in the eurozone are temporary.
Technically, The strategy of selling EUR/USD below 1.18 and on the breakout of 1.1755 mentioned in the previous article yielded results. The targets of 1.1715 and 1.168 were met. At the same time, the stability of the downward trend is not in doubt and allows you to form shorts in the event of a successful assault of the support at 1.168 in the direction of 1.1615 and 1.155.
EUR/USD, Daily chart
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