Regular news about the achievement of the interim agreement between Chinese and Americans on trade, which was actively fueled by the media and instilled a spark of hope in investors. In fact, it caused the growth of risk appetite in the markets and the weakening of the US dollar.
In the past few months, the topic of negotiations on trade between Beijing and Washington has been central to financial markets, of course, except for Brexit and the expectation that the Fed and other major central banks in the world will not seek to tighten monetary policy this year. Investors continue to reasonably believe that in the current situation of slowing global economy in general, it seems that American common sense should force Donald Trump to compromise on customs duties in trade with the Chinese which Europe and China have already adapted.
Indeed, the markets are right. They argue logically but as Trump's entire presidency has shown, he is not used to giving in and making compromises that is only if they are clearly not in his favor. His whole policy, both internal and external, is replete with a continuous confrontation with opponents and the desire to achieve his goal. The longest shutdown in American history happened precisely under Trump at the beginning of this year and despite it is about to end, the risk of a new government shutdown remains.
In our opinion, the investors' hope that the opposing sides will agree but it is extremely insignificant. Also, the Chinese are stubborn and try to stick to their interests. Only the achievement of the option to compromise will help to avoid a new escalation of the trade conflict. In the meantime, we expect the continuation of movements in the financial markets to be uncertain. As for the situation in the foreign exchange market, we believe that the weakening of the US dollar will be local. As long as the risk of not reaching agreements between the US and the PRC is present, the dollar is likely to be kept afloat since increased confrontation between the disputing parties, as well as a host of other problems which we have already mentioned above, will support the dollar as a safe haven currency.
Forecast of the day:
The AUD/USD pair is trading above the level of 0.7115 in the wake of hopes of reaching a trade agreement between the US and China. If these sentiments remain and the pair holds above the level of 0.7115, there is a chance that growth will continue to 0.7200.
The NZD/USD pair is below the level of 0.6855. It is also supported by the news on the negotiation process between the PRC and the United States. She can also continue the local growth to 0.6925 after overcoming the level of 0.6855. If this does not happen, there is a likelihood for a reversal of the pair and its expected decline to 0.6720. ain's release date from the EU perhaps by the end of 2019 or more. This is also positive.
Currently, the markets will look closely at the new data on inflation in the US expected today at 13.30 London time.
We are ready to buy euros from 1.1515.
We are ready to sell the euro from 1.1255.
