The foreign exchange market has practically stopped waiting for the start of the G20 summit since too much is associated with its outcome. The central event for world markets on the sidelines of the summit will, of course, be the meeting of the leaders of the United States and China.
Earlier this month, US President D. Trump announced that he would make a very attractive selling proposition to the Chinese. This triggered a wave of optimism among investors, who began to hope that the new trade agreement between Washington and Beijing would reduce the risks of pressure on world economic growth, which would allow market players to continue playing to raise the value of assets. But in the middle of the month, a conflict occurred again between the Americans and the Chinese. This has caused a fair increase in market participants' fears that a possible deal already at the meeting in Buenos Aires at the ASEAN summit, which starts today but may fail.
In anticipation of these events, the foreign exchange market has practically stopped, since so much will depend on it. It can be argued that if an agreement is reached that really reduces tensions in trade relations between countries, and if it promotes the expansion of trade relations, this will undoubtedly be a breakthrough and will support the demand for risky assets.
Another scenario is the complete lack of agreement but despite the "drawn" optimism of Donald Trump, it can happen. The American president needs a radial change in the trade balance between the United States and China, so he will be satisfied with the option of at least a small improvement in favor of America. Yet the question arises, will the Chinese go for it? After all, their economic success was largely based on the fact that, to put it simply, they were in a better position, earning in production for American companies and in trade. In the event of a complete failure of the negotiations, we can expect the resumption of the fall in the stock markets in the world and appreciation of the dollar as a currency of refuge, as new trade duties will come into force both from the United States and China since the new year.
But another option is also possible when a certain option will be adopted that will either delay the introduction of new trade duties for some time, or an extremely soft, but essentially meaningless agreement that will simply postpone this problem for some time. In our opinion, this option will also be bad for the markets, since the suspension will only increase the uncertainty factor. In this situation, defensive assets will again be in demand and, probably, the dollar will also be among them.
We expect that today before the summit, the foreign exchange market will consolidate in a narrow range.
Forecast of the day:
The EUR/USD pair is likely to consolidate today in the range of 1.1345-1.1460.
The AUD / USD pair is likely to consolidate today in the range of 0.7260-0.7345.
