The pre-New Year duration in the forex market is defined by two opposite states either a phlegmatic flat or abnormal volatility. The euro-dollar traders did not go into hibernation and show quite vigorous activity this year. This contributes to the colorful fundamental background, mostly concerning the prospects for the United States currency. The dollar index fell from 97.4 points to the current 95.9 for the 3 weeks of December, reflecting the decrease in need for greenbacks. The yield on 10-year-old treasuries also consolidated listed below the 3% mark, putting extra pressure on the currency.
The primary factors for the weakening of the dollar can be divided into two components: firstly, this is the position of the Fed, and secondly – the current occasions of a political and macroeconomic nature. In my opinion, the beginning point for a decrease in the dollar was the December meeting of the Federal Reserve, where the regulator revealed a downturn in the tightening up of monetary policy. Traders have actually always treated with some doubt the point projection of the Fed, which, as a guideline, reflects the most positive scenario. For that reason, when the regulator minimized the approximate number of raises to 2, then there right away appeared on the market that the market must be gotten ready for just one rate boost in 2019. Some professionals voiced a more downhearted option in which the Fed will take a wait and see position throughout the next year.
Under conditions of such unpredictability, the role of crucial macroeconomic indications is growing. Let me advise you that the American regulator reduced its forecasts for GDP development and inflation, while Jerome Powell included that next year the data will be “not so favorable” to the Fed’s projections, as it was, for instance, this year. Therefore, the customer self-confidence index released the other day seriously tore down the position of the United States currency. The release was much worse than expected: for the very first time in five months, the sign dropped listed below the 130th mark.
The decrease in consumer activity is filled with a slowdown in inflation – and after all, the customer rate index showed weak growth in November. In addition, the index of individual usage expenditures which is one of the primary indications, which is closely kept an eye on by the Fed likewise dissatisfied traders. On a month-to-month basis, the indication stayed at 0.1%, although professionals predicted a very little boost to 0.2%. Similarly, other indications in the exact same method do not make happy dollar bulls as the level of wages is marking time. Nonfarm dropped to 155 thousand and the GDP indication was modified downwards to 3.4%.
All this suggests that investors’ issues about the lingering pause are really reasonable and although these are only independent speculations of traders, these elements have a strong pressure on the US currency. The political crisis in the US plays only a background role, which by the way, also matches the general unfavorable photo. Yesterday, the US Senate did rule out the budget, consequently extending the “shutdown” until January 2 of next year when the lawmakers will meet in a new composition. Trump is promoting his election pledge to build a wall on the border with Mexico and the congressmen, in turn, refuse to assign a wonderful quantity of five billion dollars for this.
The scenario is clearly at a deadlock and without any compromise solutions. According to the Democrats, they are all set to allocate just 1.3 billion to “other measures to make sure border security,” while Trump said he would not sign such a budget. On his Twitter account, he said that the shutter will last “as long as it takes,” hinting at additional fight. The political split is worsened by the fact that the Democrats in January will get control over the House of Representatives while the Republicans will take several additional seats in the Senate.
Simply put, the hazy outlook for the monetary policy of the Fed and political unpredictability put pressure on the dollar, pressing the EUR/USD pair to the borders of the 15th figure. The European currency does not yet have its own arguments for growth, therefore, the northern price characteristics are due only to American events. However, the European calendar is not completely empty. A preliminary assessment of information on inflation growth in Germany will be published today. The characteristics of German inflation can have a considerable effect on the euro, especially because experts predict the contradictory dynamics of this sign. After a two-month decline on a month-to-month basis, the consumer cost index need to increase to 0.3% while it is anticipated to decline to 1.9% in annual terms. If these signs come out in the “green” zone, the pair will receive a factor for additional growth.
In technical aspect, the pair broke the first resistance level of 1.1440 (the upper line of the Bollinger Bands on the day-to-day chart) and headed for the next barrier that corresponds to the upper border of the Kumo cloud on the exact same timeframe (1.1515 mark). If the rate consolidates above this level, the Ichimoku Kinko Hyo sign will generate a bullish Parade of Lines signal, which will open the way to the location of the 16th figure. Today, these are all prerequisites for the execution of this scenario.
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