The dollar never ceases to amaze

Curious things happen on Forex! At the end of last year, the number of "bears" in the dollar among large banks was growing rapidly. They justified their pessimistic forecasts by slowing the US economy and a long pause in the process of normalizing the Fed's monetary policy. At the beginning of 2019, these factors are acutely felt, but the EUR / USD pair is not in a hurry to the north. The "American" is losing ground, except against safe-haven assets, while it feels confident against European G10 currencies. What is the matter? Wrong forecasts? Or their hour has not come yet?

Apple's reference to weak demand for the company's products in China and the most rapid peak of the US manufacturing activity index over the past decade were the first news of a potential slowdown in US GDP. A leading indicator from the Atlanta Federal Reserve Bank shows that in the fourth quarter, the economy will slow down from 3.4% to 2.2% q / q, which forces investors to buy treasury bonds. As a result, yields on 1, 2, and 5-year debt have fallen below the effective federal funds rate. The market is beginning to require the Fed to ease monetary policy.

Dynamics of bond yields and Fed ratesThe same thing happens with CME derivatives, the dynamics of which are commonly interpreted as expectations of changes in the Fed's monetary policy. If a month ago the chances of raising the rate from 2.5% to 2.75% at the March meeting of the FOMC exceeded 40%, then at present they have fallen to zero. Investors are confident that the Fed at the end of the first quarter will not adjust the number of borrowing costs. Moreover, the derivatives market ceased to believe in the continuation of the normalization cycle in 2019 and provide a more than 40% chance of reducing the rate by 25 bp. during a year.

Dynamics of the likelihood of a Fed rate hike in MarchIn such conditions, the stability of the dollar looks amazing. Yes, it collapsed against the yen, but in this case, there was a thin market during the holidays and large-scale operation of stop orders, I mean technical factors. It is likely that investors do not have enough weak statistics on the US labor market for December and Jerome Powell's "pigeon" comments in order to force the EUR / USD quotes above the important resistance by 1.1485.

You can, of course, talk about the weakness of the euro. Data on business activity in France and Spain disappointed, the dynamics of inflation in the currency bloc has long left much to be desired, and the ECB begins the process of reinvesting income from matured bonds on the balance sheet. The Central Bank is not ready to completely abandon the policy of cheap money, and the increase in rates by forks on water was written. The situation is aggravated by the resuscitation of the hard problem of Brexit, which significantly complicates the life of not only the pound but also the single European currency.

Technically, the idea of a downtrend reversal is still relevant due to the implementation of the combination of the "Three Indians" and "Splash and Regiment" patterns. The breakthrough of the upper limit of the consolidation range of 1.1265-1.1485 ("shelves") activates the harmonious trading model Bat with a target of 88.6%.

EUR / USD, the daily chart

The material has been provided by InstaForex Company - www.instaforex.com