On Monday, the markets were waiting for the resolution of the situation with Huawei. These expectations were met as US Secretary of Commerce Wilbur Ross said that American companies will receive permission to cooperate with Huawei for another 90 days since it takes time to rid the dependence of American companies. Markets took the news positively and rapid growth continued, the S&P 500 added 1.21% at the end of the day. On Tuesday, the Nikkei and Shanghai Composite indices are trading in the green zone.
Markets are in dire need of a positive signal after the inversion of the yield curve announced last week, which is 6 out of 7 cases over the past decade was preceded by a large-scale recession. The University of Michigan Consumer Confidence Index preliminarily drops rapidly in August from 98.4p to 92.1p, which indicates that the period of falling demand is approaching and inflation is slowing.
The main intrigue of the coming months is not about whether a recession will occur or not in the United States, which will entail a recession in the rest of the world, but if the Fed will take active steps to support the economy at the current stage or choose a waiting tactic until when the recession is formalized.
The approach of the recession requires the Fed to change the rhetoric and not to mention, the rate adjustment in the middle of the normalization cycle. However, to recognize the growth of risks and change the action strategy accordingly. According to rumors, Fed head Powell forbade FOMC members to make public comments, which only fuels interest in the key event of the week. Powell's speech at the annual Jackson Hole symposium on Friday.
In this vein, the traditionally important news about the publication of minutes from the FOMC meeting on Wednesday no longer causes increased interest, since the published information is outdated. One of the few really important issues is the Fed's liquidity strategy as the recent public debt ceiling agreement will dramatically increase the issue of bills and bonds, which in turn will lead to a depletion of liquidity. This uncertainty is in favor of strengthening the dollar, which will remain a favorite at least until the end of the week.
The consumer demand in the eurozone has a tendency to weaken and annual inflation in July slowed down from 1.3% to 1.0%. The result is negative and reinforces concerns about it. Without new stimulus measures, the eurozone economy will slide into recession.
The euro does not have a strong driver since the factors currently affecting the European currency will actively manifest themselves in September, when the issue of new steps by the ECB will be on the agenda. While the euro follows the market, low volatility will continue for some time.
Today, Italy is in the spotlight because the parliament will vote on a "no confidence vote" in the Conte government with Salvini as the main initiator from the Lega party. but so far, the probability that the government will stand up is regarded by the markets slightly higher. If the Conte government is nevertheless dismissed, then the lack of the possibility of creating a new stable government may force the president to explain the early elections in October or November. If events follow this scenario, Salvini expects to increase his representation in parliament and seize control of the cabinet. The political crisis in Italy is a deterrent to the eurozone banking sector and contributes to pressure in the euro.
The EUR/USD is trying to form the basis of 1.1065/74, followed by updating the local maximum of 1.1114 and going into the lateral range. However, it is more likely that the decline will resume to 1.1025 with the subsequent attempt to break.
The lack of news does not allow the pound to find a direction with a high probability to continue trading in the lateral range. The support level of 1.2080/88 and the equilibrium level is about 1.2108. Meanwhile, the resistance level is at 1.2185 and 1.2208. The pound remains within the specified limits that requires a new strong driver to exit the range.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.