The dollar as a whole steadily survived the recent collapse in oil prices. This, in particular, it succeeded, thanks to the return of the dollar carry trade. However, the US currency, apparently, is now at the peak of its value. The US economy can get hit by the sharp drop in black gold to its lowest level since last year.
"For the past few months, the dollar has been gaining from the carry trade in the United States, which relied on low volatility and relatively advanced dynamics. The collapse of oil, in this case, is important, because the United States is now one of the most important marginal oil producers. This is a shock for the growth of one of the key emerging industries in the country," says a recent review of the TD chapter in North America.
Since early October, the WTI brand has lost almost 30% of the cost. Against the background of the collapse of oil, the collapse of stocks and concerns of American monetarists for the US economy, traders have worsened expectations regarding the Fed's rate hike next year.
The rate of imputed inflation on 10-year bonds, which shows the market's opinion on the annual growth rate of prices for 2028, fell below 2% for the first time since January following the drop in oil.
EUR / USD
The euro was optimistic about the readiness of the vice-premier of Italy to revise the fiscal plan for 2019, so the collapse of the single currency did not happen. The bulls on the euro/dollar pair, adopting the expected slowdown in the rate of tightening policy in the United States, again turned to the idea of dollar sales.
The possibility of a pause in the rate increase process was confirmed by Fed officials, as one of the reasons they called the loss of momentum in the American economy. In addition, the OECD forecast convinces that policy tightening in 2019 will be slower than in the current year. World GDP has reached its peak this year and will begin to slow down from 3.7% to 3.5%, representatives of the authoritative department said. Considering trade wars, the situation with oil prices and the outflow of capital from emerging markets, the figure could go a little below 3% by 2020.
Fed meeting in December
The market believes that, before taking a pause, the regulator will still raise the rate at the December meeting. However, judging by the statement of Patrick Harker, the last meeting of this year promises to be hot. The head of the Federal Reserve Bank of Philadelphia does not want to vote for a rate increase due to weak inflation forecasts. The dollar will receive another blow if the Committee next month worsens estimates on key macroeconomic indicators.
It is worth noting that now it is too easy for traders to part with dollars. Of course, they have good reasons for selling a greenback, which loses its power before our eyes. Here, the question arises. What currency can you replace the dollar? While we are thinking, the probability of consolidation of the main pair in the range of 1.125-1.155 increases.
