The euro quite quickly overcame the highs one after another when paired with the dollar. The "news" so hastily climbed up that they did not pay attention to the deterioration of the German business climate and did not take into account the fact that the German economy is in a depressed state. On Tuesday, market participants still looked at the gloomy data from France, and the euro stopped its growth. Although the reason, perhaps, was not a report on production activity, but the dollar itself, which, closer to the second half of the day, made attempts at recovery.
According to the Dallas Federal Reserve, the uncertainty about trade wars and global growth really creates headwinds for the US economy. At the same time, it is too early to talk about monetary easing. The derivatives market is confident of a 25bp decrease in the rate at the July meeting and gives 45% to the fact that the rate will be reduced by 50bp It is clear that someone is mistaken, but who?
According to Donald Trump, the Fed is mistaken, and also does not know what it is doing. The US president attacked Jerome Powell with a new criticism after a short break. Trump compared the Fed with a stubborn child, and if it were not for the regulator, then the Dow Jones could have been thousands of points higher, and GDP could be accelerated to 4% or even 5%. There was a time when the markets were in a fever from such statements, now they have developed immunity. However, it's hard not to admit thatTrump's persistent desires will come to life sooner or later. The US president has set a goal to lower rates and weaken the dollar, and he also wants to stock markets to rally. The S&P 500 is at the highest level in the entire history, FOMC members admit monetary policy adjustments, and the dollar index for the week by June 21 showed the worst performance since January last year.
As for the possible rate cut at the July meeting, on Tuesday the picture should become clearer. Traders are waiting for Jerome Powell's speech as well as those of his colleagues. High-ranking financial officials will comment on policy easing.
Meanwhile, the euro's confident pace leads to a plethora of bullish forecasts. The assumption that the US central bank will begin to cut rates more aggressively than the ECB allows JP Morgan analysts to expect the EUR/USD rate to rise to 1.15. Nordea expects the main pair to approach the level of 1.17 by the end of the year. In addition, the bank seriously believe in the stabilization of macroeconomic statistics for the eurozone. In Bloomberg, we saw that the course of the pair forms a "bullish" model. Ahead of the single currency key resistance in the area of 1.1380 and 1.1416. A break through of these marks will mean that the euro is able to re-test the highs of the current year. There will be growth potential to double the top of 2018 in the area of 1.1815–54.
If we talk about the trade conflict between the US and China, the markets are waiting for tips from the G20 summit. From further confrontation, including imposing duties on all Chinese imports, protective assets will be in an advantageous position. At this time, the correction of stock indices will be restrained by belief in an aggressive weakening of the Fed policy in July. A breakthrough in the negotiations will boost the US dollar due to the growth in yield of Treasuries. The absence of a deal and at the same time waiting for its conclusion in the near future will lead to a short-term consolidation of the EUR/USD pair.
USD/JPY
Barclays believes that the likelihood of the resumption of the US-China talks is already priced in.
The yen rose to its highest level since January, and Treasury bills rose after Iran announced the end of diplomatic relations with the United States, as America introduced new sanctions. The USD/JPY rate fell below 107 on Tuesday, the next target could be 106.60. Potentially, there are risks for the pair to decrease to 106 and even to the lowest of that of the flash-crash of this year - below 105.
The recovery potential of the USD/JPY pair quotes is limited, since many players are prepared to sell. The dollar is likely to decline, unless markets notice positive changes in the Washington and Beijing talks.
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