China and the United States began official negotiations this morning to resolve the trade conflict. Over the past month, the parties exchanged telephone consultations, and now they have met with their own eyes as the American delegation flew to Beijing for this purpose.
The meeting takes place at a fairly "high" level, thus, its results can outline the outlines of a future agreement. The working groups were created in November last year when Chinese President Xi Jinping and American President Donald Trump at the G20 summit in Argentina agreed to conclude a broad trade deal. At least this goal was set by the superpower leaders. The two-day preliminary talks will help to understand whether to expect a deal in the foreseeable future or whether the conflict will get bogged down in months of negotiations. The US president is quite optimistic. He said the day before that he believes in the ability of the parties to make a deal, since "the tariffs were very harmful to China." At the same time, he added that he had recently talked on the phone with Xi Jinping, who confirmed earlier intentions.
However, Beijing is going to meet not only in word but in deed. Firstly, China again began to buy soybeans from the States, and also lowered the tariffs on the import of American cars. Secondly, for the first time, the Chinese allowed importing several types of rice from the USA. Thirdly, one of the Chinese oil traders in the spring can resume supplies of American oil and although the latest information is unconfirmed, the trend itself is obvious -trade relations between countries are going through a period of "thaw". This suggests that both Beijing and Washington seriously intend to end the trade war, which is already in the first half of the year.
On the one hand, such prospects should support the American currency. By contrast, the fact is that the dollar was in demand only when the US-China conflict escalated that is on a wave of anti-risk sentiment in the market. Therefore, we now see the continuing decline in the US currency. the dollar index updates local minima, firmly entrenched in the framework of 95 points. Greenback is rapidly losing its trump cards, its attractiveness is markedly reduced respectively. After all, in addition to China, there are other factors that are putting pressure on the US currency - this is also the position of the Fed and the shutdown, personifying the political conflict between the White House and Congress. Against this background, even strong NFP could not save the situation as the dollar index continued its downward movement after a short burst.
Friday's speech by Fed Chairman Jerome Powell disappointed dollar bulls. He confirmed the "dovish" intentions to slow down the process of tightening monetary policy at least up to two rounds of a rate hike in the current year. Moreover, Powell said that the regulator "can at any time adjust its policy." This phrase had a strong influence on the sentiments of traders - both currency and stock markets. Hence, after the speech of the Fed chairman, the S&P 500 index increased by almost 3.5%. The Nasdaq immediately soared by 4.26%, and the Dow Jones index by 3.3%. But on the contrary, the dollar sank throughout the market, confirming the validity of the bearish sentiment.
The political climate in the United States only exacerbates the position of the greenback as the regular negotiations between Trump and the party leaders again failed. The American president threatened the congressmen to continue the "shutdown" for months or years, but this rhetoric did not have any effect. The new speaker of the House of Representatives of the US Congress, Nancy Pelosi, said that the Democrats would not agree to finance the wall and would not succumb to the threats of the president. It is worth noting that the position occupied by Pelosi is the third in importance in the US power structure (after the president and vice-president), therefore, her position indicates a serious political clinch, which thousands of federal agencies became hostages.
Thus, the overall situation last weekend did not change regarding the prospects for the US currency. In the coming days, greenbacks may be under additional pressure. If the US-China negotiations conclude effectively and the US consumer price index comes out at least at the forecast level. Experts expect a slowdown in inflation both in annual and monthly terms.
If we talk directly about the euro/dollar pair, the price dynamics will also be determined by US events. As we can see, traders have actually ignored the slowdown of European inflation, focusing only on the behavior of the dollar. This means that the pair has the potential for further growth with the first northern target of 1.1470 (the upper line of the Bollinger Bands indicator on the daily chart) and the main target of 1.1515 (the upper limit of the Kumo cloud on the same timeframe). If the pair overcomes this target, then the Ichimoku Kinko Hyo trend indicator will generate a bullish signal of "Line Parade", which will open the way to the boundaries of the 16th figure.
The material has been provided by InstaForex Company - www.instaforex.com