The Asian session at the auction on Monday did not bring any surprises, supporting massive sales in stock markets, which began on Friday. Nikkei 225 is losing more than 3%, demand for government bonds is noted, June gold futures are trading above 1320, and demand for yen is at a 1.5-month high.
Panic moods reflect the growing understanding of the promise made by the Fed at its meeting on March 21. The US economy began to move towards recession, which means that the world as a whole is beginning to move towards recession. One of the most informative indicators of the economic downturn is the spread on rates between 10-year treasures and short-term 3-month bonds reached zero, 2-year securities are in the half-step, and, as historical experience shows, the inversion of the yield curve always precedes a recession with a temporary lag from 8 to 16 months.
This conclusion means that the US economy is losing its ability to be a driver of world economic growth, which means it's time to revise long-term strategies. In connection to this, the current trade negotiations between the US and China unexpectedly acquired new meaning. Until recently, it seemed that China was in unfavorable conditions, since the complication of access to the American market would coincide with a slowdown in China's growth, but now the situation looks exactly the opposite.
China sees the weakness of the American position, and therefore, it is not interested in the conclusion of negotiations,, but in maximum tightening them. For the US, on the contrary, it is important to reach an agreement as soon as possible, since every day the Republican position will deteriorate before the next presidential company approaches.
In conditions of growing panic, the demand for defensive assets, including the dollar, will increase. Meanwhile, commodity currencies are subject to a decline, and oil prices may also decline.
EURUSD
The markets barely breathed a sigh of relief when they saw the first signs of a recovery in the eurozone economy after a protracted fall in 2018, and even predicted that the euro would not pay particular attention to the ECB's intention to launch a new wave of TLTRO as a new blow followed.
Friday's preliminary PMI indexes in March showed a noticeable decline relative to February. The German manufacturing PMI collapsed from 47.6p to 44.6p, which was the absolute minimum for 79 months, and even growth in the services sector cannot compensate for the overall slowdown.
France's second eurozone economy slowed down both in the manufacturing sector and in the services sector, while in the eurozone, manufacturing PMI showed 47.6p against 49.3p. In February, the composite index decline to 51.9p to 51.3p.
The decline in production is pushing the eurozone into recession, as it will lead to an increase in unemployment, a decline in real incomes, and in the future - a slowdown in inflation. The euro suddenly developed a bullish momentum in the evolving conditions, and now even the threat of a recession in the United States is unlikely to help it, because in the United States this threat is still a matter of the future, even if not very distant, and in Europe it is already knocking on the front door.
EURUSD returned to the downward channel forming from January. The resistance zone moved to 1.1330 / 40, and thus, there is a high probability of a decline on Monday to support 1.1230 / 40.
GBPUSD
On Friday, the European Council approved a new timeline for the UK leaving the EU. The decision provides for two options - if the UK Parliament approves the withdrawal agreement, the Brexit process is extended until March 22, but if the Parliament rejects it, then the UK will need to notify the EU of its further actions by April 12.
In any case, the EU intends to resolve the issue of withdrawal before the elections to the European Parliament, which will be held in May 23-26. The EU's rather tough decision was the cause of a riot in the British Cabinet, which, according to unconfirmed data, is preparing Theresa May to be dismissed from her post as a prime minister.
GBPUSD will decline. The pound has high chances to go below 1.3090 and leave the ascending channel.
The material has been provided by InstaForex Company - www.instaforex.com