EUR/USD Forecast: 14.09.2018
LiteForex | Sep 14, 2018 06:16AM ET
To go on the euro rally, EUR/USD bulls need to storm the resistances at 1.171 and at 1.175.
Mario Draghi’s calming rhetoric and the first since December decline in the US cpi encouraged EUR/USD bulls to drive the price to the figure 17 base. They were discouraged by Donald Trump, who claimed that the USA didn’t need so much to make a deal. China, on the contrary, has suffered a lot from the trade wars. The U.S. stock indexes are going up, China’s – down. Which of them is more interested in the trade war negotiations? The U.S. president is right: 78.4% out of 59 Wall Street Journal experts believe that the protectionism has no influence on the US economy, due to its small scale. The USA introduced the tariffs worth $113 billion, which is about 4% of its imports. The opponents retaliated with $70 billion (3% of the U.S. exports). The total amount of tariffs is less than 1% of the U.S. GDP.
Dynamics of stock indexes in the USA and China
Source: Wall Street Journal
Since mid-April, the U.S. dollar has been supported because of trade wars, resulted in turmoil in the emerging markets, divergence in the monetary policies, and the growth-gap between the U.S. economy and the other countries’ economies. The report on the U.S. inflation change and the ECB confidence in the positive outlook of the Euro-area economy has deprived the greenback of a few of its advantages. The Treasury yield responded to the cpi slowdown to 2.7% Y-o-Y, from 2.9% Y-o-Y, by a drop. Like the derivative market expectations as well.
The probability of four fed funds increases in 2018 is down to 78%, from 83%. It is remarkable that Wall Street Journal experts suggest 88% likelihood.
Well, almost everything is clear for 2018; but nobody knows what the Fed is up to in 2019. 40.7% of the respondents believe in three fed funds rate hikes, 21.1% - two, 17% - four, and 10%-one. 2 experts suggest that the Fed should ease its monetary policy. Remember, the FOMC plans to drive the target rate up to 2.75%-3% that is two or three more increases. If there are fewer, dollar will face a serious pressure.
Dynamics of the Fed funds rate and the FOMC projections
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Source: Wall Street Journal
Mari Draghi has also encouraged exiting the U.S. dollar longs. He was satisfied with the wages growth in the Euro-area, claimed the turmoil in the emerging markets to have a little influence on the European economy; he also noted that Italy would act according to the rules. The ECB president sounded comforting and so eased the negative, suggested by the lower forecasts for the GDP in 2018-2019.
Source: Financial Times
The European central bank is currently going along the trodden path, but the Fed must be extremely careful. There are rumors in the market that the U.S. inflation rate hit its high in July and should continue slowing down. Does it make any sense to hike the interest rate with the same pace? If the Fed seems weak at the meeting in September, EUR/USD may exit the trading range of 1.15-1.185. Anyway, the euro bulls have to successfully test the resistance levels at 1.171 and 1.175.
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