The dollar risks are expected to receive several rather sensitive signals this week, which will indicate the end of the bullish phase.
The preliminary PMI data in the Markit version showed a significant slowdown in May, and if they didn't cause any particular surprise for the manufacturing sector of 50.9p, the drop in the services sector index from 53p to 50.9p caught the markets by surprise. According to PMI, GDP growth is currently only about 1% y / y, which is already well below the trend.
It is also necessary to note the decrease in inflationary expectations; in just a month, the yield on 5-year bonds. Tips decreased from 1.89% to 1.59%, which has increased the chances of slowing inflation in May.
Today, the final PMI data in the manufacturing sector from Markit and ISM will be published, on Wednesday - reports on the service sector will be shown. If the preliminary data is confirmed, and there is no reason to doubt about it. The Fed will have to somehow comment on the rising risks, or, in an extreme case, increase the uncertainty. These reasons will not lead to a reduction in the rate at the FOMC meeting on June 18-19, but will strengthen the market's confidence that such a reduction may happen as early as July. In any case, Deputy Powell Clarida announced on Thursday that it was possible to reduce the rate if forecasts worsen. However, no matter how worsening the forecasts, what are we seeing now?
The yield on 10-year treasures dropped to 2.135% on Friday, that is, exactly to the level recorded in November 2016 at the time Trump was elected President of the United States. In essence, all the positive momentum is lost, and then it goes further down.
Political news also does not add enthusiasm to the bulls. On May 30, Trump announced that he intends to impose a 5% duty on all goods from Mexico if "the flow of migrants has not stopped," but this, as usual, is just an excuse, plans to raise the duty to 25%, as is the case with China . On Sunday, the PRC State Council published the so-called White Paper, in which he placed full responsibility on the US for all the failures in trade negotiations, and the very fact of such publication indicates that China is ready for a new round of escalation.
EUR USD
The key event for the euro zone this week is the ECB meeting on monetary policy issues. The ECB is expected to provide details on the launch of the TLTRO program. It is also expected to provide a new risk assessment. At the April meeting, the ECB focused on the growth of risks, which to a large extent was the reason for the depreciation of the euro. However, the forecast for economic growth at 0.4% in the quarter remained at a high level. Thus, the ECB has slowed down economic growth and low inflation as temporary factors, but since April, the changes have generally been negative.
Composite PMI has come close to 50p. There is an increase in problems in the manufacturing sector. There is also a threat regarding their expansion to the services sector. Also, the ECB in recent months increasingly focuses on political uncertainty. The growth of which has a negative impact on investment, as well as the escalation of the trade war between the United States and China, which ultimately may lead to a revision of GDP growth forecasts downward.
Doubts that the ECB will be able to maintain confidence after the meeting will put pressure on the euro, but are unlikely to serve as a basis for the continuation of the decline. First of all, chances are high that Draghi as head of the ECB will be replaced by Weidmann, head of the Bundesbank, which has a much more hawkish position. Secondly, the dollar is experiencing significant difficulties, as the outpacing growth in the expenditure side of the US budget is becoming a trend that may require a number of stimulating measures from the Fed by autumn.
On Monday, the final data on PMI in the manufacturing sector in May will be published, and on Tuesday - preliminary data on inflation will be released. EURUSD has no direction. It is with high probability that it will continue trading in the range, support 1.1153 / 57, resistance 1.1203 / 13. The next target is 1.1230.
GBPUSD
The pound continues to be under pressure. The CFTC Friday report showed an upward trend in the growth of short pound contracts for CME. There are no reasons for a bullish reversal. On Monday, GBPUSD will remain in the declining range, support 1.2603, and further 1.2550.
