In the coming week, most sessions will be held without the release of US economic indicators. At the same time, important news will be released in the Asian and European regions that contribute to the growth of the rates of major and exotic currencies.
Additional pressure on the dollar will have data on new cases of Covid-19 in the US states, which set a record last week. Unlike the United States, Europe and Asia escaped with local outbreaks, stopped by timely quarantine measures.
Last week, insiders emphasized the dissatisfaction of Saudi Arabia with the actions of a number of OPEC members who violated the obligation to reduce production. The kingdom has already promised to return to the practice of price war, which led last time to an effective result. The drop in oil prices caused by this may be a negative factor that can cancel the growth scenario of major and exotic currencies.
The number of cases of coronavirus in the world is again approaching maximum levels. This may lead to a repetition of quarantine measures by a number of developed countries, which will slow down the recovery of the global economy. Therefore, the new work week starts against the backdrop of negative expectations of investors.
Demand for safe assets will increase political tensions: a possible fall in Hong Kong’s law enforcement system, a war of sanctions by the United States and the EU. Capital flows will go not only to gold, but also Fed bonds, which will ensure the growth of the dollar.
Currency speculators are likely to join investors, also buying American currency. Unlike other central banks, the Fed temporarily turned off the printing press. The agency lowers its balance sheet for the second week in a row, significantly reducing swap lines with developed countries.
An alternative that could lead to an increase in major currencies will be the resumption of active speculation in the stock markets. The reporting season for companies is starting next week, which could lead to a new wave of purchases if corporate, financial indicators exceed the values of the first quarter.
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The US dollar is likely to strengthen if the Fed does not make policy adjustments.
The Fed will meet next week. This will determine the dynamics of the dollar in the near future.
It will be difficult for the head of the department Jerome Powell to offer new incentive tools – the interest rate is near zero, the QE program has practically no limit. In addition, the US economy has already seen the first signs of recovery, enabling the Fed to take a wait and see attitude.
The dollar is able to strengthen if the Fed does not come up with anything new. A trend can be indicated from the beginning of the week. The absence of depreciation of major currencies will mean that insiders are counting on new stock market incentives from FOMC.
The general fundamental background of the next week is also developing “successfully” for the US dollar, due to the “ghost of hard Brexit”, problems in reaching agreements between the countries included in OPEC. The situation for the growth of the dollar is favorable.
The last week of spring is characterized by long-term trends. The US dollar lost a little position, which contributed to the strong growth of major world currencies. As a result, their quotes came close to important support / resistance levels. Usually after this, corrective movements begin. However, the extreme value of currencies coincides with an important fundamental event – a meeting of the ECB, the Central Banks of Canada and Australia. This makes correction forecasts less clear.
The monetary policy of the Central Banks is unpredictable, now they are forced to seek and apply new forms of stimulating the economy, which in turn makes the market reaction unpredictable. The complexity of the analysis is increasing due to the unequivocal readiness of the United States for sanctions against China due to the events in Hong Kong, possible solidarity on this issue from other countries and China’s retaliatory steps.
At any moment, the correction may turn into a short flat, which is enough to remove overbought / oversold, so that major currencies can continue the “anti-crisis” rebounds that began at the end of March.
Given this uncertainty, we should wait until this week to clarify the ECB’s monetary policy. This may be a good signal for continuing medium-term investments in currencies of developed and developing countries amid a weakening US dollar.