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Will the dollar exceed the red line?



The nervousness of financial markets caused by trade negotiations between the US and China, the discrepancies in economic development and the dovish rhetoric of central banks – Fed's competitors, allowed the US dollar to continue its offensive. Since the 70s of the twentieth century, only 11 times increased for 9 or more days. In February 12 can happen. At the same time Brexit's negative impact on European GDP, rumors about the expansion of the ECB's monetary stimulus and fears of Germany falling into a recession have put pressure on the euro. The couple are knocking on the lower limit of the shopping range 1.1265-1.1485, and the "bears" sincerely hope that they will open it.

Despite the fact that the US administration has received a message that Donald Trump wants to meet with Xi Jinping "very soon", markets prefer to be cautious about information about US-China negotiations. Yes, the owner of the White House has already changed his mind once (he was going to talk to his friend from the Middle Kingdom personally at the end of February, and then no sooner than in March), the personal meeting does not say anything yet. Countries risk overreacting, affecting the holy cow – Beijing's support for state-owned enterprises. And let Trump want to make a deal, and China is not interested in escalating the conflict because of the slowdown in its own economy, but it's worth moving the red line when the war resumes. There are pressures on this subject. Its decline, taking into account the close relationship of the Middle Kingdom with European exports, is one of the factors behind the EUR / USD peak.

Dynamics of the yuan and the euro

Source: Commercial Economics.

Limiting external demand, political and geopolitical risks hinder the economy of the currency block. Together with China, the United Kingdom is an important trading partner of the eurozone, whose GDP under the influence of Brexit fell in the fourth quarter to the lowest level in a decade in annual terms. Diving into the abyss pulls the euro. In addition, it is unlikely that the German and French economies in 2018 will grow by more than 1.5%. Germany is at risk of falling into a technical recession between October and December. The contrast with the countries with their strong improvement is close to the 2% target and strong. How can I not sell EUR / USD in such conditions?

The dynamics of the British pound and the euro

Source: Commercial Economics.

The ECB's soft position reflects the weakness of the currency block economy. After the Fed has moved away from aggressive monetary restrictions, the European Central Bank deliberately acts as a "dove," because otherwise it threatens to unnecessarily strengthen the euro. Personally, I doubt very much that he will revive LTRO, but the rumors do not give the Euro fans back. The 1.1265 support breaks will create the prerequisites for the continuation of the EUR / USD summit towards 1.118 and 1.11. The victorious series of "bears" looks impressive, the smallest fear will force some of them to accept profits, which will lead to a correction.

Dmitry Demidenko for LiteForex


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