The US dollar ended the week on a positive note, reaching a local maximum at the end of October on the wave of the Fed's firm position and then following the course of normalizing monetary policy.
The uncertainty associated with the general situation in world markets due to the trade wars unleashed by the United States, as well as the first serious signals that the first world economies of the United States and China, as well as the eurozone, began to seriously slow down in their growth, led to a weakening of the dollar as the main reserve world currency. This could be attributed to the fact that the opinion appeared in the markets that the American regulator might falter and give a signal that it could take a pause in raising interest rates. Recently, President D. Trump has repeatedly called for this to be done.
Another factor holding back the strengthening of the dollar was the anticipation of the outcome of the midterm elections to the American parliament, where the clear victory of one of the parties, Republicans or Democrats, threatened to turn into a full-scale political crisis. The results showed that the state of neither peace nor war is preserved, which is also not a positive thing. As a result of this event, we can talk about preserving the "Damocles Sword" of uncertainty both in America's policy and the situation on world markets, which, we believe, will contribute to maintaining the high volatility factor in all financial markets without exception.
With regard to the prospects for the foreign exchange market, we believe that the dollar still has a good opportunity to continue strengthening, as the Fed's clear signal that rates will continue to increase according to the previously approved plan, as well as the process of reducing the balance of the regulator, which significantly reduces the supply of dollars liquidity will contribute to this.
Regarding the possible current dynamics in the currency markets, we note that the US dollar may be somewhat corrected, therefore we consider it necessary to resume its purchases at a local decline.
Forecast of the day:
The EUR / USD currency pair is trading below the level of 1.1335, remaining under pressure due to the strengthening of the US dollar position against the backdrop of the Fed's determination to further raise interest rates. This week, attention will be paid to the publication of data on eurozone GDP. If they disappoint, the euro will remain under pressure. We consider it necessary to sell the pair with its probable decrease to 1.1300, and then to 1.1245.
The GBP / USD currency pair is trading below the level of 1.2950 amid Brexit problems and a clear slowdown in the UK economy. This week, the market will focus on inflation data. If the slowdown continues, we should expect a further fall in the pair. Given this, we consider it possible to sell the pair with a target level of 1.2800.
