The US dollar strengthened strongly on Wednesday in the wake of continuing concerns about the continued growth of the global economy proves that investors are not only not sure that this growth will continue as they also fear the collapse of financial bubbles formed in recent years.
The dynamics of market assets clearly indicate that there is a significant proportion of investors willing to continue to play up the value of assets in the hope that the Fed and other global central banks will return to the practice of supporting economies, the so-called quantitative easing (QE). At the same time, there is a no less representative number of market players who assess the current state of affairs as critical. They avoid market activity and seek to insure their market risks with the purchase of defensive assets. This primarily refers to government bonds of an economically strong country where US Treasury government securities lead.
After the profitability of treasuries went up from the end of March amid hopes that the Fed could begin the process of lowering interest rates in the second half of this year. Their sharp decline on Wednesday suggests that if investors' expectations have not changed significantly, then it'll noticeably reeled. In our opinion, the reason for this was the drop in hopes that the PRC and the United States would agree on the rules of trade and the aggravation of trade relations between the EU and Washington only strengthened these sentiments but these hopes have been the cornerstone that stimulated positive sentiment all these time. An additional negative was the news that the Chinese authorities can, if not cease measures to stimulate the national economy, significantly reduce this assistance.
We relate the sharp appreciation of the dollar with precisely those persistent fears and processes that are indicated above. For the time being, a sharp recovery in the dollar can be associated in closing positions against it but not with a change in investors' general ideas regarding the future prospects for the development of the situation in the markets. Recently, the dollar has dropped significantly to some major currencies but remained in the range. It is likely that this trend will continue to stay in these ranges before the May Fed meeting on monetary policy, although the dollar may continue to strengthen locally.
Forecast of the day:
The EUR/USD pair fell to the lower boundary of the lateral range of 1.1145. The pair may rebound to 1.1185. We believe that it must be sold from this mark. Also, the pair should be sold if the level 1.1145 is broken with a probable target of 1.1100.
The AUD/USD can also be adjusted up to 0.7035. We consider it possible to sell it, approximately from this level with targets of 0.7000 and 0.6980.
