The Asian session on Tuesday was quite calm for the euro-dollar pair. The US currency is still under background pressure, which significantly intensified last night after the publication of a tweet by US President Donald Trump. He stated that he had a meeting in the White House with Fed Chairman Jerome Powell, and discussed "including negative rates" with him. And although the likelihood of introducing negative rates in the near future is extremely unlikely, the market was worried about the rhetoric of the American president, especially amid pessimism regarding the conclusion of a deal between the United States and China. The dollar index slipped to 97.570 points yesterday, but then somewhat recovered, after the Fed's reaction to the published tweet.
The US regulator confirmed the meeting between the Fed chief and Trump, but at the same time assured investors that Powell did not discuss his expectations on monetary policy, only stating that the Fed's course "will completely depend on economic prospects." Also, the Fed chairman allegedly said that the regulator would follow its mandate, ensuring maximum employment and price stability. In conclusion, the Fed recalled that members of the central bank make all decisions on the basis of a "thorough, objective, non-politicized analysis. "
On the one hand, the US regulator again emphasized its independence in the matter of further prospects of monetary policy. But on the other hand, the very fact of an unexpected meeting between the head of the Fed and the president is alarming for some experts. The American press notes that such audiences are usually planned in advance - therefore, a certain spontaneity here may indicate some circumstances that are unknown to the market. Secondly, Trump following the dialogue with Powell spoke too warmly about the meeting - perhaps for the first time in the past year and a half. The US president has criticized the Fed for a long time - even when the regulator set about lowering the interest rate. In his opinion, the Fed members acted too slowly, and this fact negatively affects the country's economy. He repeatedly called on them to cut rates immediately by 50 or even 100 basis points, while expressing indignation at the fact that Powell does the US economy "more harm than China."
But the thing is that the Fed is a priori an independent body that does not obey either the head of state or the White House. Trump would have long and gladly removed Powell from office if he could: formally, he has such powers, but this requires more solid reasons (for example, the commission of a crime) than disagreement with his policies. Therefore, the head of the White House had no choice but to express his indignation with Twitter.
Against this background, yesterday's peaceful rhetoric of the president is quite suspicious: impulsive Trump was pleased with the meeting, voicing negative rates among the topics discussed.
The Fed hastened to refute Trump's words, but the regulator confirmed the fact of an unplanned meeting. It is worth noting here that, formally, Fed members throughout the entire time of Trump's reign refused to recognize his influence, declaring their independence. But the de facto Federal Reserve acts in the wake of easing monetary policy, following, as it were, parallel to the tweets of the US president. Earlier this year, Powell quite unexpectedly softened his rhetoric, gradually leading the market to lower rates. Now the process of easing monetary policy is paused, but not completed yet. Speaking in Congress, the head of the Fed made it clear that his colleagues are ready to react accordingly "if circumstances change significantly."
Obviously, we are talking about the consequences of a trade war with China - and here we come to the most likely reason for yesterday's events. According to some experts, Trump discussed with Powell the prospects for monetary policy in the context of the possible failure of negotiations with Beijing. This assumption has emerged amid very gloomy rumors about the US-Chinese dialogue. According to sources on CNBC, the deal is unlikely to be signed in the foreseeable future, since the negotiation process has actually stopped. On the one hand, Trump does not agree to cancel the introduced tariffs (both September and anticipated December). On the other hand, Beijing also does not make significant concessions, especially in light of the impeachment procedure and the upcoming presidential elections, which are less than a year away.
According to recent polls, Donald Trump is still lagging behind potential rivals from the Democratic Party (and not just Joe Biden). The ongoing trade war negatively affects the rating of the current president, and the Chinese understand this very well. In other words, Beijing is not refusing a dialogue with Washington, but is not in a hurry to compromise, given the possible upcoming changes on the American political Olympus.
If the assumptions of the analysts are correct, then already at the next Fed meeting (which will be held in December) Jerome Powell can significantly soften his position, "worried" about external risks. This topic was previously the focus of the regulator's members, but it's quite "blurry": now Powell can focus the market's attention on the prospects of a trade war in the context of renewed easing of the Fed's monetary policy.
Thus, the EUR/USD pair still retains the potential for corrective growth - today the price can reach the upper limit of the range 1.0980-1.1090. If the pair consolidates above 1.1090 (that is, above the middle Bollinger Bands line, which coincides with the Kijun-sen line on the daily chart), then buyers will have a way to the next resistance level 1.1170 (the upper Bollinger Bands line on the same timeframe).
The material has been provided by InstaForex Company - www.instaforex.com