The focus of the market is still on the vigorous activity of the American president, which is aimed to focus mainly on itself, according to his winged expression. Donald Trump continues to put pressure on the countries that are US economic partners around the world while gaining some resistance in Europe from Angela Merkel, who actively protects Nord Stream II and more active opposition in the negotiation process with China.
On Monday, it became known that the next round of trade negotiations between Washington and Chinese capital in Beijing was over and will resume in the capital of America this week, on Thursday and Friday.
On financial markets, Monday's activity was noticeably low against the background of the absence of American investors due to the weekend in the US President's Day. However, in our opinion, the activity would still remain low due to the uncertainty resulting from the negotiations between the Americans and the Chinese. Despite the optimistic reports from Trump, competent sources from the opposite side indicate that things are not that smooth. This is holding the market back with the real risk associated when Washington will announce on March 1 an increase in customs duties on goods from China in the amount of $ 200 billion from 10% to 25%. Although the American president had previously said that the negotiation process could be prolonged and if it progresses successfully, the risks still remain.
Given this balance of power, we believe that the overall lateral dynamics in the currency markets will continue until the end of the month.
Another important event will take place this week which is the publication of the minutes of the last Fed meeting on monetary policy. Despite statements from Fed members and Chair Jerome Powell that a pause may be made in raising interest rates, it is unclear whether the regulator will stop reducing its balance or not. This is even more important than the interest rate factor, as a continuation of the balance reduction will noticeably reduce the amount of dollar liquidity that automatically hit the US equity market, which over the past years has inadequately expanded in our opinion given the gap with the realities of the American economy.
It can be assumed that if the meeting protocol does not show a clear and precise attitude of the Federal Reserve to reduce the balance. This can once again put pressure through the US on world markets with the preponderate state of uncertainty.
Given these likely prospects, we believe that the US dollar will continue to balance and remain in a horizontal trend against competing currencies.
Forecast of the day:
The EUR/USD pair is trading below 1.1300. It continues to consolidate in the lateral range against the background of multidirectional forces, which do not allow it to not only grow markedly but also decline. Today, it may continue to decline to 1.1250, if economic statistics from Germany and the eurozone are weaker than forecasts.
The AUD/USD pair is below the level of 0.7125. On the headlines, the minutes of the RBA meeting showed that the regulator will not rush to increase interest rates. On this wave, the pair may continue to fall to 0.7060.
