Fundamental analysis from instafx

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mazri_2008

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EUR/USD: weak European reports and Trump's new protege

On Friday, the euro plunged into the 12th figure within a fairly strong downward pulse. Bearish sentiment among traders is due to several reasons. First, it is the growth of anti-risk sentiment in the market, and secondly - the release of disappointing data from Europe.

The Brexit theme has added a negative fundamental picture: the growing tangle of contradictions completely confused investors. As a result, the pair lost almost 200 points in two days, marking new price targets.

It is worth noting that the single currency was declining even against the backdrop of a weakening dollar, which is also under certain pressure after the Fed's dovish meeting and the news that Trump plans to appoint Stephen Moore, who is a consistent supporter of soft monetary policy, to the Board of Governors of the Federal Reserve.

But EUR/USD traders shifted the focus of their attention from American events to European problems, especially since the dollar was also used by many market participants as a defensive asset.


But the recently published European data were disappointing. The German manufacturing activity index (PMI), contrary to forecasts, has declined again - that's three months ago. Since January, this indicator has been below the key 50th mark, thus demonstrating the deterioration of the situation.

Experts predicted a slight increase - from 47.6 to 48.0 points, but the real numbers were much lower - at around 44.7 points. The French also disappointed: after two months of staying above the level of 50, the indicator was again in the area of 49 points.

The European PMI showed a similar trend, confirming the presence of a systemic problem. It is worth recalling here that during its March meeting, the European Central Bank had once again lowered its forecasts for GDP growth and inflation - the second time in the last three months.

According to the regulator, the eurozone economy will grow by only 1.1% this year, while the previous forecast suggested an increase of up to 1.7%.

Regarding inflation, the US central bank also significantly reduced its expectation: growth is projected to reach 1.2% this year (against the early forecast of 1.6%), and to 1.5% next year (against 1.7%).

Judging by the dynamics of PMI, real GDP figures are barely reaching the forecast level. In turn, all this suggests that the matter of raising the rate will not be considered until the second half of next year, whereas traders should not rule out a reverse step this year.

Although the monetary policy easing scenario was not discussed at any of the recent meetings, such an option cannot be ruled out, given the recent releases.


The market is well aware of this fact. Obviously, the rhetoric of ECB members will only soften in the near future, especially against the background of "stalling" negotiations between the US and China.

According to rumors, Trump significantly tightened his position on future trade relations, after which the negotiation process became more complicated. This fact increased the pressure on the single currency, since the European economy is largely dependent on the Chinese.

China is the second largest trading partner of the European Union (after the United States), the volume of trade between them exceeds 1.5 billion euros per day. For example, in 2017, EU exports to China amounted to $198 billion, and imports from there were valued at 374 billion.

Therefore, the prospects of resuming a trade war between the superpowers are scaring traders, especially against the background of a slowdown in the growth of China's GDP.

The growing uncertainty around Brexit also does not make it possible for EUR.USD buyers to show character. The latest events have brought the situation to a standstill: on the one hand, Brussels voiced harsh conditions of a delay, on the other hand, the British deputies continue to stand on their own.

In addition, many Britons are demanding the abolition of Brexit as such: almost 5 million British citizens have already signed the petition on the internet. On Saturday, tens of thousands of them came out to protest, demanding to leave the country in the European Union.

It is difficult to predict how this epic will end. The uncertainty exerts indirect pressure on the single currency, increasing the overall pressure.

At the same time, it should be remembered that the US currency is also going through hard times. By and large, the greenback regained its position only due to global tensions over the prospects of US-Chinese relations and the world economy as a whole. But if we ignore this issue, there is no support for the dollar anymore.

The Fed finally paused the process of tightening monetary policy, while Trump plans to strengthen the Fed's "dovish" wing. The other day he said that he would nominate Stephen Moore to the Senate for approval as a member of the governing council of the Fed. Moore is an active critic of hard monetary policy in general, and Jerome Powell in particular.

In addition to this fact, dollar bulls were also disappointed with the data on manufacturing activity (ISM) in the US, which was much worse than expected, having updated an eighteen-month low (although still above the 50-mark, in contrast to European similar indicators).



Thus, the euro-dollar pair has the potential to further decline. But downward dynamics might be limited.

The price is approaching a strong support level of 1.1220 (the bottom line of the Bollinger Bands indicator on the daily and weekly charts).

This level was "too tough" for bears of the pair, who twice in the last six months tried to gain a foothold in the 11th figure.

Therefore, when approaching this target, you should be careful (denoting stop-loss) or consider long positions.

The nearest upward target of corrective growth is the mark of 1.1340, which corresponds to the lower boundary of the Kumo cloud on the daily chart.
 
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mazri_2008

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The yen got wings, next stop $ 108.5



The fall of the yield curve below zero for the first time since 2007 stirred up the financial markets. The indicator, showing the difference between 10 and 3-year treasuries, is a reliable harbinger of a recession with a time lag of 12-18 months.

Its inversion pushed players to active sales of shares. The losses of the S & P 500 amounted to 1.5%, and two new topics appeared on the market, fueling traders' interest in protective assets, such as the yen.

The sharp change in the rate of the Federal Reserve at the beginning of the year contributed to the rapid rally of US stock indices. The stock market prepared to close the quarter with the best result in nearly 30 years.

However, it looks unnatural when macroeconomic statistics deteriorate and stocks rise. The growth of the US economy in the first quarter, will slowdown to less than 1% according to estimates of the leading indicator from the Atlanta Fed. hus, Morgan Stanley suspects that October-December GDP may be adjusted from 2.6% to 1.8% in quarterly terms. Divergence between economic reports and stock indicators cannot last forever.

The situation is similar throughout the world. Thus, the index of purchasing managers in the manufacturing sector of China, Japan, and the eurozone is below the critical level - 50, which indicates a slowdown in global GDP growth.

Meanwhile, European stocks are ahead of their American counterparts, and the global MSCI is increasing. The naked eye can see that the market is overheated, which means it's time to pay attention to the safe haven assets. A 1.5% increase in the Japanese yen last week is a further evidence of this.



The national currency of Japan was under the "press" for quite some time. Its growth was hindered by such factors as high risk appetite, low rates of the world debt market and volatility.

Inversion of the US yield curve provoked carry-traders to close positions, increased demand for funding currencies, and also caused the USDJPY rate to depreciate.

Among the most obvious fears of the market is the excessively "soft" position of the Fed. There was a too sharp change of tone. In December, the regulator allowed three series of rate increases, and now it does not plan any policy tightening. Perhaps, officials of the regulator do not agree on something, for example, a speedy recession. That is why the yield curve and went into the red zone.

Safe haven assets, as well as the yen, will be supported by the growing risks of the subsequent correction of the S & P 500 and increased volatility. The situation is heightened by rumors about Theresa May's resignation and the possible escalation of trade conflicts. Thus, the USDJPY pair may well move to the level of $ 108.5.
 

mazri_2008

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Current situation in Brexit: confusion and vacillation

Yesterday, the pound against the dollar returned to the base of the 30th figure, responding to the continuing uncertainty about the prospects for Brexit. The situation is becoming more complex and political contradictions are growing, despite the general desire of London to make a deal with Brussels.

The British parliament made it a rule to reject possible scenarios, however, it does not voice any constructive counter-proposals. The latest events have disoriented traders, especially against the background of general trends in the foreign exchange market as the key macro indicators of the leading countries of the world are slowing down and the rhetoric of the Central Banks has noticeably softened. Political uncertainty only worsens the already difficult fundamental picture of the GBP/USD pair.



At the moment, the "operational situation" is as follows: the speaker of the House of Commons of the British Parliament, John Bercow, agreed to hold the third vote on an agreement on the conditions for Britain's exit from the EU today after long negotiations;

Although, he refused to do so previously, citing the provisions of the convention, which is more than four hundred years old. According to these rules, parliamentarians cannot re-examine the same question if its essence has not been changed in any way.

The deputies found a way out as they proposed to exclude from the package a political declaration agreed with Europe, in which the parties indicate their future relationship.

In other words, the question that is relevant "here and now" given that the deal on the country's withdrawal from the Alliance should be put to the vote in order to formally move the deadline for leaving the EU until May 22.

On the one hand, this is very positive news, which in theory was supposed to support the British currency. Yet, the pound reacted rather phlegmatically, rising only 30-40 points this morning. Such a reaction is fully justified since the fate of the deal is still in limbo as is the fact of today's vote.

Late yesterday evening, unofficial information appeared that May would not make a deal for the third vote, despite the consent of the Speaker of the House of Commons.

On Friday, approximately at 17:00 London time, only debates on this issue will be held in Parliament, and, possibly, a vote on the draft deal without a political declaration.

This information is based on the news story of one of the British TV channels but unofficial. Indirectly, this scenario also confirms the influential American news agency. According to their information, Theresa May does not see the necessary support in parliament, so there will not be a "meaningful vote" today.

Meanwhile, the leader of the lower house of the British parliament, Andrea Leeds, said yesterday that the deputies had only one way to leave the country in a civilized way from the EU until May 22 by the end of March 29 to vote for the government-proposed deal.

Thus, as of yesterday evening, May was not ready to submit a draft agreement to parliament. Moreover, representatives of the unionist party refused to vote for the proposed option, reducing the likelihood of its approval to zero but without the votes of which, the conservatives do not have a majority in the House of Commons.

However, the political situation in London is changing so rapidly that the prime minister could enlist over the past night the support of the necessary number of deputies. This is unlikely, but it cannot be ruled out. Therefore, it can still bring surprises today.



In other words, the pound continues to be under the pressure of uncertainty, especially since the market talked about the likelihood of "hard" Brexit once again. But in my opinion, such a scenario is unlikely to come true.

Let me remind you that literally the day before yesterday the British parliament rejected the idea of a second referendum and the idea of withdrawing the notice of intention to leave the European Union was not put to a vote at all.

If the deputies do not come to a common denominator in the near future, then London will have to ask for a more substantial temporary delay for at least a year or two.

Consequently, Britain will take part in the elections to the European Parliament and will participate in the formation of the budget but negotiations on the deal may have to start over again, especially if May resigns and/or early parliamentary elections take place in the country.

In general, a long delay will have a positive effect on the British currency in view of at least some stability, albeit of a temporary nature. But today we cannot exclude other options, both extremely positive for the pound (approval of the transaction) and extremely negative (the threat of chaotic Brexit). The results of today will allow us to understand which scenario is most likely.
 
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