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FOREX EUR / USD outlook for May 14

   FOREX EUR / USD outlook for May 14

forex-news-euro_3The confident move of the EUR / USD towards the founding of the 20th figure reinforced rumors that the three-week dollar rally was exhausted, and it is time for the main currency pair to return to the uptrend. At the heart of its dynamics is the speed of economic growth, and the slowdown in global GDP in the first quarter auknulos strengthening of greenback. Nevertheless, during the remainder of the year, the indicator will begin to restore the previous dynamics, and the States will act as the locomotive. As a result, the faster the US economy moves forward, the better the Eurozone, Britain, Japan and other countries will feel, which in the long run will result in the strengthening of their currencies against the US dollar.

When the States sneeze, the rest of the world encounters a cold. For a long time, the Fed could not understand why the normalization of monetary policy does not lead to a tightening of financial conditions: greenback weakened, stocks grew, yields of bonds of special zeal in the campaign to the north did not show, credit spreads narrowed. In 2018 the situation radically changed. Financial conditions began to tighten not only in the US, but also in other countries, which is a deterrent to global GDP.

Dynamics of financial conditions


Most likely, the successes of the "bulls" in the EUR / USD of the last days are due to profit-taking after the rapid rally of the dollar in April-May, because the euro has not increased during this time. On the contrary, the success of the coalition negotiations between anti-European parties "Five Star" and "Northern League" in Italy intensifies political tension, which is a "bearish" factor for the euro. The reaction of the market did not take long: the yield of Italian bonds rose sharply, expanding the spread with German counterparts, which is an indicator of political risk.

Dynamics of the yield of European bonds

As one of the reasons for the start of the process of fixing profits on long-term bonds was the inability of the yield of 10-year US Treasury bonds to storm the psychologically important level of 3%. The high demand for a $ 25 billion auction on the placement of these securities assures that investors are quite satisfied with the rates. In addition, the resuscitation of the risks of a trade war increases the pressure not only on profitability, but also on the position of the US dollar. The more States require Mexico and Canada to negotiate NAFTA, the faster these countries enter into agreements with other partners, including the EU. At the same time, the central banks are diversifying $ 11 trillion of foreign exchange reserves in favor of the euro.

Dynamics of the share of currencies-competitors of the US dollar in the currency reserves of central banks

Dynamics of the share of currencies-competitors of the US dollar in the currency reserves of central banks

According to experts of the Wall Street Journal, the persistence of tension in trade relations involving the United States will lead to a surge in capital from dollars to euros, yuan and some other currencies by $ 200-300 billion during the remainder of the year as part of the process of diversifying foreign exchange reserves. Meanwhile, the bulls for EUR / USD are gathering strength to storm the resistance at 1,1995-1,201.

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