The glitter of the dollar will fade next year. It is for this scenario that currency strategists of reputable financial corporations of the world are preparing. Maps of American currency confuse slower than this year, the growth of the economy, according to JPMorgan Asset Management. Other analysts believe that bearish sentiment will strengthen the Fed, which is expected to pause the policy tightening process. FX experts also believe that the growth of market volatility and the demand for capital abroad will provoke an outflow of funds from America.
JP Morgan and Morgan Stanley advise getting rid of the dollar index. The opposite opinion is held in Barclays. In the first half of the year, analysts are waiting for the continuation of the rally due to a further increase in the federal funds rate.
Now investors' faith in the slowdown in US GDP, which, in their opinion, will be the main cause of the dollar falling from a pedestal, is growing every day. More than half of Duke University's respondents are confident that America will face a recession at the end of 2019. Over 80% of respondents say that it will descend at the end of 2020. Will market participants reduce investment on expectations of a recession, which will provoke it?
The forerunner of a slowdown in the US is the inversion of the yield curve. Almost every respondent interviewed by Reuters reported that the departure of the indicator to the red zone will happen in the next 12 months. Some even call a shorter term, six months.
Indeed, the dollar has problems, but there's something else interesting. Will the euro take advantage of them? The economy of the currency bloc is unhealthy, Italy is on the verge of a recession and a subsequent downgrade of the credit rating, trade disagreements are strongly hitting the export-oriented economy. Moreover, the weak dynamics of core inflation allows the ECB to stay idle.
Further dynamics of the EUR / USD currency pair will depend on the decisions taken by the ECB on Thursday. Will the members of the regulator change their opinion regarding the timing of the rate hikes? Of course, the ECB, following the Fed and the Bank of England, will complete the QE program. However, the most interesting thing is the income reinvestment schedule and the possible launch of LTRO.
If Draghi confirms the weakness of the region's economy and reports on new measures of monetary incentives, the euro risks significantly deepening. At the same time, his optimism can be a real lifeline for the bulls on the euro.
