A few hours remain before the start of the G20 summit in Osaka, Japan. The closer the meeting between Donald Trump and Xi Jinping, the stronger the unrest in the market, which is still weak in currency quotes, but it is a matter of time. After stagnation, the market usually explodes.
Now traders have taken a wait. Despite the fact that it is extremely difficult to predict how the meeting of the leaders of the two largest economies in the world will end, the market for the most part hopes for a positive outcome. At a minimum, investors expect the US and China to resume trade negotiations. The outcome of the summit will be of great importance for the currency markets, as well as for the Fed. In the case of a trade agreement, which is unlikely, the American Central Bank will no longer need to reduce the rate.
It took a little more than half a year when the financial markets were agitated by the announcement of a truce in the US-China trade war. This happened on the sidelines of the G20 summit in Buenos Aires. This is partly why investors have high hopes for the summit in Japan.
Trump's backup plan
On the eve of White House officials in private conversation with Reuters reported that the official Washington does not plan to put any conditions on the issue of tariff expansion. However, Donald Trump, apparently, has his own point of view and his plan "B". The American president speaks positively about his future meeting with his Chinese counterpart, and does not rule out the introduction of fees. If he does not like something, then all imports of the Middle Kingdom will be taxed. This is reminiscent of the negotiations at gunpoint, in which China had previously refused to participate.
Trump, as a good chess player, thinks a few moves ahead, and a new portion of criticism of Powell suggests that he is beginning to worry about relations with Europe. The US President believes that the place of the head of the Fed should be occupied by Mario Draghi, who initiated the currency war. Powell was unable to recognize the actions of the enemy, which, according to Trump, is a sign of a weak mind and naivety.
In fact, the "soft" rhetoric of the ECB is primarily associated with the weakness of the eurozone economy. In September, the regulator may reduce the deposit rate from -0.4% to -0.5%, and in July, will adjust the wording about staying at the same level until at least the first half of 2020.
The ECB will resume QE and will buy assets of 30 billion euros per month over five quarters. This opinion is shared by 42% of respondents. However, when both regulators are on the threshold of mitigation, the dynamics of the EUR / USD pair is determined by its depth. Most European funds put on a weak dollar.
Opinion of funds against the dollar
The largest of them, Amundi, is confident that the dollar will inevitably adjust as the US Central Bank shifts towards a more "dovish" policy. In Aberdeen Standard, we saw that the "passing winds" of the dollar in the form of high yield treasuries and strong economic growth in the United States are transforming into calm. According to UBS Global Wealth Management, the "American" may continue its downward trend if the upcoming summit in Japan this weekend fails to ease tensions in world trade.
Note that the dollar strength indicator fell 1.5% this month. The longest rally in the US currency over the past four years has been interrupted due to the fact that the Fed has signaled a quick policy easing. The level of yield of state bonds last week reached a minimum value since 2016, narrowing the premium to similar securities of Germany and Japan.
"We expect the dollar to lose a little more of its recent strength and further worsen its position. The market has become very one-sided, pro-dollar, in terms of sentiment and positioning. The dollar "bullish" cycle seems very mature, and with an abundance of long speculative positions on the dollar, further correction seems very likely, "
Taking into account the fact that Goldman Sachs and JP Morgan simultaneously reduced their 10-year Treasury rates forecast for the end of the year from 2.8% to 1.75%, Eurocurrency is not to be envied. Although the G20 summit can change a lot, but for now EUR / USD does not want to go beyond the range of $ 1.13-1.14.
