US stock indexes started the week in the red zone, corporate reports of most companies show a drop in quarterly earnings. Partly negative was stopped by good news from China, in particular, after the statement by the head of the People's Bank of China that the regulator would take measures to support the economy, and therefore, there was no reason for concern, but this news had a short-term effect.
Sales were also supported in Asian markets. The Japanese Nikkei lost more than 500 points on Tuesday morning, the Shanghai Composite fell by more than 1.2%, sales are coming amid rising demand for government bonds, which indicates an increase in panic. Recently, the IMF in the next economic review came to the conclusion that economic growth peaked, the reason for which are trade wars, economic uncertainty in Europe and tightening of monetary policy on a global scale.
Uncertainty is manifested in the expectations of the results of elections to the US Congress. By now, the likelihood that Democrats will take control of both the Senate and the House of Representatives has gone up to 80% (according to FiveThirtyEight), and for the dollar, the victory of the Democrats can have pronounced bearish consequences.
According to Nordea, the likelihood of an increase in dollar liquidity will increase dramatically in Q1 of 2019 due to the fact that the national debt ceiling will be raised before March 1 (which directly follows from the budget agreement between Republicans and Democrats for the 2018 fiscal year). At the beginning of 2017, a similar situation arose. At the end of 2016, there was a reduction in liquidity, signs of a dollar deficit appeared, and similarly, from March 2017, the debt ceiling should have been raised. This process ended with the provision of additional liquidity, which led to a reversal of the dollar index. Now, the situation is completely similar, and it is aggravated by signs of a slowing economy, which increases the chances of repeating this scenario.
Thus, the dollar is still the market's favorite and will objectively remain so in the coming weeks. However, players will regard the probability of a Democratic victory as a sign of the weakening of the dollar and will prepare for a reversal of the trend.
Eurozone
In the eurozone, the focus this week is on the ECB's monetary policy meeting. As expected, this meeting will be largely passing and will not lead to changes in monetary policy.
The indicators of business activity and consumer sentiment are generally stable with a slight downward trend. The inflation rate remains above the target of 2%, but in its structure, a significant part of the energy component, core inflation has decreased in recent months and dropped to 0.9% in September.
Attention will be focused primarily on the comments of Mario Draghi at the final press conference on inflation and the dynamics of average wages. As for the asset purchase program, the announcement of the official completion of the program is also unlikely to take place; most likely, the final wording of the question will be postponed to December.
Expectations on EUR / USD on Tuesday remain neutral, an attempt to break through support for 1.1432 will almost certainly take place, but it is unlikely to lead to full-fledged movement towards the next support of 1.1380, and more likely another pullback and consolidation.
Great Britain
Pound does not have a strong driver this week. No important publications of macroeconomic data are planned, the Brexit negotiations ended in failure, and now, you need to wait for December or even January for at least some concrete to reappear.
The currency pair GBP / USD is under pressure, support for 1.2919 is already very close and will be broken through with high probability today. Temporary support for the pound can be found at 1.2870 / 79.
The material has been provided by InstaForex Company - www.instaforex.com