After reaching a one-and-a-half-year peak, the dollar index began to lose its positions: over the past week, it gradually slid down, finding itself at the borders of 95 points on Monday.
This trend at first glance seems counterintuitive – a strong Nonfarm and rising inflation was to support the American currency throughout the market, especially due to the confident rhetoric of Powell's. A few days ago, the head of the Federal Reserve said that traders should get used to the fact that the rate will grow – gradually but steadily. This position offset market concerns about the possible impact of Donald Trump on the degree of determination of the head of the Fed. However, just a few days later, Fed officials again made traders nervous. At this time, the Vice-President of the US Central Bank Richard Clarida surprised everyone with his "dovish" rhetoric. On Friday, he delivered a speech that dollar bulls didn't like at all - the tone of his rhetoric was too cautious and pessimistic.
Although, in my opinion, the problem is somewhat wider: the speech of Richard Clarida, Vice President of the Fed, largely contradicts the position of his "boss" Jerome Powell. It should be noted here that Clarida is the protege of Donald Trump, who nominated him for the post this spring. Taking the second most important position in the Fed, he has always been considered a supporter of a smooth and gradual approach to the process of tightening monetary policy. But on Friday, he said that the interest rate is "close to its neutral level." In addition, Clarida complained about the slowdown in the world economy – in his opinion, this fact will negatively affect the dynamics of the American economy.
In general, his rhetoric was cautious and mild – especially against the backdrop of Powell's decisive speech. Such a contrast of opinions did not go unnoticed: the market talked about possible disagreements among Fed members regarding the prospects for monetary policy next year. The December rate hike is not discussed – the probability of this step is still high (and this fact is largely already incorporated in current prices). But the further steps of the Federal reserve remain questionable. I believe that next year the main discussion among the Fed members will unfold about where the level of the neutral rate is, which, on the one hand, does not "overheat" the economy, but, on the other hand, does not hold back its growth.
Earlier, the majority of members of the regulator said that this level is "just below three percent." This year, many of them have changed their minds, shifting this target to the range of 3.25% -3.5%. But, as we see, not everyone agrees with this: according to Clarida, the rate "has almost reached" neutral level. Whether he is voicing Trump's opinion in this way or is it really his stance is an open question, but the very fact that there are disagreements within the Fed will have a negative impact on the greenback's dynamics.
Us-China relations also do not support the dollar. And although the "truce" in the trade war is still far away, the parties are gradually moving in this direction. So, last week, after a three-month break, Beijing and Washington nevertheless resumed top-level negotiations. On Monday it became known that the teams of trade negotiators decided to change the deployment of face-to-face negotiations - they will meet in Argentina on the margins of the G20 summit, where later (December 1) the leaders of the United States and China will also meet.
The US dollar, which had previously enjoyed the status of a "safe haven" in the escalation of the trade conflict, has lost its appeal in this context. And although the White House threatens a cold war in case of failed negotiations, traders still have hope for the G20. A possible truce reinforces the risk appetite, while the dollar has lost one reason for its growth – at least for now.
If we talk directly about the EUR/USD pair, in addition to the above fundamental factors, Brexit also plays an important role. Here the situation is changing almost hourly – but for the day the main intrigue is connected with the vote of no confidence in the UK prime minister: if the deputies do not collect the necessary 48 signatures, the pound will receive preliminary support, since this fact, though indirectly, will increase the chances of approval of the draft deal by the Parliament. In this case, the euro has also strengthened its position, as the topic of Brexit has recently become a significant influence on the single currency.
Technically, the EUR/USD pair overcame two resistance levels on the daily chart – the average Bollinger Bands line and the Kijun-sen line. The next price target is the upper line of the Bollinger Bands indicator on D1, which corresponds to the level of 1.1485. If the pair overcomes this target, the Ichimoku Kinko Hyo indicator will form a "Golden cross" signal, which warns of a change in the bearish market to a bullish one. In this case, the price may jump to the middle of the 15th figure.
The material has been provided by InstaForex Company - www.instaforex.com