September 21-25, 2020. Dollar strengthening is likely

2020-09-20

The trends of the pound and yen are likely to continue in the coming week. It is determined by the politics within the countries. Analysts expect the first steps from the new Japanese prime minister, the defeat of Boris Johnson, who is trying to violate the already signed provisions of the Brexit agreement, and clarity from the Bank of England on the policy of negative rates.

Buying the dollar is an anti-crisis strategy for investors, which can be canceled by further developments in the political events of the week. The proximity of the US elections and the current drop in stock indices will likely force the Fed to announce additional stimulus for the economy.

For the same reason, the Democratic Party is able to convince the Speaker of the House of Representatives, Nancy Pelosi, to agree with the Republicans and ratify the second package of economic aid. This could give their candidate Joe Biden additional points in the US presidential election.

The new week starts with the probable blocking of TikTok and WeChat, as well as the discussion by the House of Lords of Boris Johnson’s draft law, which allows violating the already signed provisions of the Brexit agreement. Both events have equal chances of positive and negative resolution of the situation, which determine the currency strategy of traders.

In the event of a breakdown in the sale of a part of the social network of an American company and Johnson’s victory, the markets will face a strong strengthening of the dollar, scaled up by the increased problems of the coronavirus. The increase in the incidence has already led to the resumption of quarantine measures against businesses in a number of developed countries.

September 7-11, 2020. Instability

2020-09-06
Lagard
Lagard

Falling stock markets traditionally increase the demand for dollars. Big investors are now selling technology stocks ahead of the US elections, amid uncertain predictions about the next president. The gap between Trump and Biden has suddenly narrowed, and this is bringing instability to the markets.

The next – unpredictable factor of the coming week – the meeting of the European Central Bank. Judging by the statements of officials, the ECB is concerned about the strengthening of the dollar. His actions led to a reversal in the dollar index last week. The resulting correction may deepen if the head of the ECB Christine Lagarde hints at expanding programs to stimulate the economy.

The economic stimulus programs of France and Germany are capable of canceling the scenario of strengthening the dollar. Two years before the elections, Macron will try to neutralize the consequences of the coronavirus, pouring as much money as possible from the agreed 100 billion euros, state aid and investments. Germany has extended its employment subsidies until 2021.

Currency speculators will pay attention to these factors only if there are clear signs of a slowdown in the US economic recovery or a new round of American confrontation with China.

August 31 – September 4, 2020. Kaleidoscope of events

2020-08-30
Kaleidoscope of events

At the end of the next week, data on the US labor market will be published. However, expectations of a decline in US unemployment and job growth could lead to the dollar strengthening against major currencies.

In addition to macroeconomic factors, the technical factor of the proximity of the three-year lows of the dollar index will contribute to the dollar’s growth.

The growth of the dollar and political events are also favorable. The main one is the confrontation between the United States and China, which has moved to the area of ​​the disputed territories of the South China Sea, as well as the problems of the Eurozone.

At the end of the outgoing week, Germany unexpectedly refused to discuss the Brexit topic at a meeting of EU Foreign Ministers. Instead, an unscheduled speech by Brussels negotiator Michel Barnier was announced. According to insider information, the official can make it clear about the readiness of the European Union to restore borders without conditions.

This alignment will negatively affect all European currencies, especially the pound will suffer. The pressure on Germany comes after Boris Johnson’s announcement of his resignation. The British Prime Minister, a champion of a tough break with the EU, was unable to recover his health after suffering from the coronavirus.

Due to illness, his Japanese colleague, Shinzo Abe, left his post. This puts the yen on a separate row for next week. The exchange rate can change unpredictably during the selection of a successor to the post of Prime Minister of Japan.

The strengthening of the dollar can be reversed by the success of the third stage of vaccine trials in China and the UK. Positive news will boost demand for risky assets. Additional support for stock markets and the growth of major currencies will be provided by oil. Increased energy demand could be triggered by a hurricane that halted 85% of US production.

In this case, it is worth paying attention to the Asian currencies of countries with a high Central Bank rate. Investors are actively investing in their bonds, fleeing the zero rates of developed countries. Financial inflows will significantly strengthen the rate of exotics in the Asia-Pacific region.

August 24-28, 2020. Temporary drop in demand for the dollar

2020-08-23
Nancy Pelosi

The strengthening of the dollar in the coming week is likely to end and the growth of European currencies will begin.
The main reason for the weakening of the US currency will be the agreement between Congress and the White House on the aid package. House Speaker Nancy Pelosi made such a promise at the Democratic convention, hoping for the party’s candidate to win the presidential election. In this case, Congress and the White House will no longer have disagreements on such issues.

Trade talks between the United States and China are another factor in the weakening of the dollar. They were postponed many times, but at the end of the outgoing week, the White House and the Ministry of Commerce of the PRC confirmed the preparation of a meeting of delegations. The fact of negotiations will lead to an increase in stock markets and a temporary drop in demand for the American currency.

The real threat to the major currencies will be the speech of the head of the Fed in Jackson Hole. Jerome Powell will announce the parameters of the Fed’s policy at the traditional, annual economic council. The growth of the dollar index can be ensured by the official confirmation of the thesis of the FRS Protocols.

The document released last week showed the position of the department: refusal to print money, transition to fiscal incentives. Markets regard this decision as a signal for a sharp tightening of monetary policy.

August 17-21, 2020. Flat major currencies. Oil price

2020-08-15
Conversation

The second wave of the epidemic began in Europe. Against this background, the dollar strengthened slightly, and market players began to have hopes for a trend change. But the statistics came as an unpleasant surprise.
If the latest US data could be interpreted as an improvement in the country’s economic condition, then the retail sales indicator canceled all this, making traders doubt the positive trend. The growth in retail sales did not meet the market expectations, the indicator increased by 1.2%, while market players expected it to increase by 1.9% in July. Therefore, the dollar returned to a downtrend in the medium term.
Also, American lawmakers cannot agree on the amount of assistance to the economy and citizens of the country affected by the pandemic. The more they delay this moment, the more negative the consequences for the economy and consumer spending will be. Retail sales are an extremely important record for the dollar. However, the data may well correct market expectations for fiscal policy.
As for the EURUSD pair, it begins to feel pressure from the sellers. But it should be noted that a bearish trend has yet to form. Thus, on long-term timeframes for most currency pairs, there is a flat, in which short-term and medium-term trends are periodically observed, synchronously with the release of important news in the global economy.

The oil market may open with a gap towards sales on Monday. This is due to the fact that Saturday (August 15) negotiations between the United States and China have been postponed, which indicates a confrontational basis in the negotiations. Beijing and Washington continue to insist on their readiness to fulfill their obligations under the trade agreement, but the Chinese side accuses the United States of pursuing a policy of protectionism and thereby interfering with the implementation of the deal, and the United States launched an investigation into how correct China’s policy was in the fight with coronavirus, and do not rule out serious consequences if China’s guilt is proven.