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.
Next week there will be several speeches by Fed Chairman Jerome Powell, to which the FOMC protocols will be added. It is likely that the positive mood of the head of the Fed may help strengthen the US dollar. In this case, the rest of the currency is waiting for a downtrend.
Trends in Asian currencies will determine the monetary policy of China. The theme of China and the United States is again on the first line of the daily financial agenda. On the one hand, the White House administration and the Chinese government are trying to establish a trade deal dialogue, while both leaders are building up confrontation.
The US President speaks of a possible severance of relations with China, reinforcing the words with actions against Huawei, to which the Chinese authorities promised to give an answer. If this plot develops, it can overshadow Powell’s positive speeches and damage the dollar.
Recent speeches by the heads of the Central Banks of developed countries and a number of international economists prophesy a general recession of the world economy at the end of the second quarter of this year.
Oil provided some protection against news negativity, but this driver may exhaust itself at the beginning of the new week. A portion of the statistics of GDP and unemployment of developed countries is likely to lead to a general decline in stock markets and, as a result, will cause an inflow of capital in dollars and securities of the US Treasury, and as a result, weaken national currencies.
An alternative scenario is a conflict with China, in this case, investors will return to the tactics of last year – the allocation of funds in major currencies. The past meeting between trade representatives of the countries hints at such a development of events. However, the results of this meeting did not lead to any specifics.
An important factor for the euro will be the size of the decline in Eurozone production, two times higher than similar statistics leaving Britain from the EU. It is possible that the pound in the future may show a faster recovery than the euro.
Statistics on oil reserves in OPEC will have a big impact on stock markets. Indices may fall if it turns out that countries have not reduced their volumes ahead of schedule, and demand is not recovering, with storage facilities crowded with cheap oil. In this case, the dollar will strengthen, despite the negative figures of producer prices. This will confirm the continuation of the economic downturn in May.
The press expresses suspicions and doubts about the rapid recovery of the Chinese economy. Hints about manipulating statistics figures are increasingly heard. If the fears are not confirmed, then the positive trend of Asian currencies will resume.
The first week of May is a traditional long weekend in Japan, Singapore and the UK. The month is known for another tradition – sales on stock markets, which can lead to a weakening of a number of national currencies and, as a result, to the strengthening of the US dollar.
The US currency will begin to strengthen after the next week’s flat. The economies of Asia and the European Union continue to attract investments in the hope of an early recovery, which translates into increased demand for the euro, yen and other major currencies.
If economic indicators and political decisions of the next week repeat the trend of the previous week, the dollar index may continue to fall, at least until the next weekend.
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