The ECB and the Fed are going to cut rates, while the Bank of England is not yet ready for this, and this could support the

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The single European currency fails to demonstrate a steady upward trend, despite expectations that the US Federal Reserve System (FRS) will cut interest rates for the first time in ten years.

Derivatives market expects the US central bank to lower the rate in July and September. This is a negative point for the dollar. Why then the euro can not benefit from this?

The fact is that the ECB also does not exclude the possibility of easing monetary policy to stimulate the European economy and inflation in the region.

UBS analysts believe that the regulator will lower the deposit rate twice before the end of this year.

"Most likely, this will happen in September and December, and each time the step size will be 10 basis points. In addition, the ECB may resort to QE, if the outlook for the economy and inflation in the eurozone worsens, downside risks associated with trade policy and geopolitical uncertainty materialize, or the Fed has a weaker monetary policy than expected. We think that at the meeting next week, the ECB will make adjustments to its statements of intent to prepare the markets for the coming changes," they noted.

Thus, it turns into a "vicious circle": both the American and European central banks want to cut rates and lower the rate of their currency. Who will lose: euro or dollar? It is possible that this week will be a draw and the next winner will be the greenback.

Meanwhile, the Bank of England, it seems, is not yet ready to lower interest rates. Moreover, some members of the BoE Monetary Policy Committee are considering the possibility of raising rates in the fall, if after Brexit there is a high increase in consumer prices.

According to a number of analysts, since the ECB and the Fed are setting investors to lower rates, the pound can show good growth in quotes.

"The pound is already trading at crisis levels and will resist further decline. High inflation expectations and inflation, which is close to the Bank of England target, should for the time being keep the central bank from deciding to soften the policy," say Nomura analysts.

"Great Britain's exit from the EU without a deal is a risk, and it will certainly lead to the formation of new lows in sterling, but this will happen only in a few months, and we don't expect the market to lay a high premium for a hard Brexit until Parliament returns to work in September after the summer break," they added.

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The Fed rate cut is not due to Trump's whim

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The president of the United States accuses China and the European Union with currency manipulations. At the same time, the euro and the yuan are more likely to be victims of trade conflicts than instruments. China's GDP growth in the second quarter was confirmed, as predicted. This is the lowest value for the last 27 years. The fiscal stimulus of $291 billion is clearly not enough for the economy to develop as the Chinese authorities plan. Disagreements with the US has hurt the country's foreign trade. As a result, shipments of Chinese products to the US fell by 7.8% in June, while imports fell by 31% in annual terms. The surplus, as a result, expanded to a 7-month high. The development of events clearly does not correspond to the previously written scenario in Washington.

The Fed will cut rates this month, including due to the risks of a slowdown in the country's economy. The head of the regulator made it clear that this would be a purely preventive measure. The yield curve, which predicted all recessions over the past 50 years, was at -1.6 bp on Friday, July 12, while it was at -19 bp a week earlier. This is the most dramatic indicator jump during the reign of Donald Trump. Financial markets are sensitive to a change in the position of the Fed, but it is not yet clear how much the regulator is ready to ease policy. There are suggestions that the criticism of the White House's host is only a background, and the central bank is actually led by investors.

Most of the surveyed economists believe that the negative and pressure towards the Fed does not affect the central bank's outlook. It's independence is a bit undermined and that's all. During Powell's speech to Congress, lawmakers urged him not to take into account the recommendations and threats from the White House, promising protection if necessary.

The fear is not Donald Trump, but financial markets. At the end of last year, it was they who signaled the need for a pause in the process of normalizing monetary policy. At the beginning of this year, the Fed leadership announced the beginning of a period implying patience. Then investors began to unwind the topic of rate cuts, and Powell seems to meet their expectations. Now the market is asking for three rounds of policy easing. The question is, will it come to life?

Authoritative forecaster Bloomberg - Eurobank Cyprus - believes that the dollar index will be stable until the end of the summer. At the same time, expectations of lowering the rate in September and later will allow "euro bulls" to reach $1.17 by the end of the year. While his forecast comes true at 100%. The EUR/USD quotes are firmly stuck in the trading range of $1.12–1.14.

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The euro cannot benefit from a negative policy easing for the dollar. The fact is that the ECB meeting will be held next week on July 25, where the regulator may also announce the need to reduce rates. The pressure is on both currencies at the same time, so in the long run a combat draw.

However, some strategists expect the main pair to grow to the level of $1.14 this week. To do this, it will need to overcome the high at $ 1.1285.

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EUR/USD: a sluggish flat in anticipation of ZEW reports and US retail sales data

At the beginning of the trading week, the euro-dollar pair continued a correctional growth after the release of fairly good data from China. However, during the day, EUR/USD bulls could not strengthen the upward impulse, as a result of which bears have then intercepted the initiative on the pair. This has contributed to the disappointing rhetoric of European officials against the background of strong data from the United States. Trump's threats to devalue the US currency have so far been sidelined, since all the information on this matter is in the nature of unverified rumors. In addition, according to some analysts, the US president will not be in a hurry with actions until the July Fed meeting, at which the regulator is likely to lower the interest rate.

Therefore, traders of the EUR/USD pair live today - and the overall results of Monday are clearly not in favor of the single currency. Thus, according to the German Minister of Economy Peter Altmeier, the key economic indicators suggest that in the second quarter of this year, the growth of the country's GDP will slow down significantly. This is indicated by the low growth of the service sector, as well as a slowdown in industrial activity. External demand is declining, and with a high degree of probability this trend will only gain momentum at the expense of a hard Brexit and the ongoing trade war between the US and China.

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As is known, Germany is the "locomotive" of the European economy; therefore, such forecasts increase the likelihood of monetary policy easing by the European Central Bank. Here it is worth recalling that representatives of the ECB more and more often warn the market about such intentions. In particular, ECB member Benoit Coeure, who four years ago was one of the initiators of the launch of the stimulating program, said last week that the regulator could resume QE in the near future, if the situation in the eurozone economy demands it.

A similar position was voiced by ECB chief economist Philip Lane, whom the press already calls not only the central bank's chief economist but also the "chief adviser" to Mario Draghi's successor Christina Lagarde. According to many analysts, Lagarde will be guided precisely by his recommendations (at least for the first time), so the likelihood of mitigation of monetary policy conditions is growing due to this factor. Lane once again reiterated that the European regulator needs to pursue an accommodative policy in order to return inflation indicators to the targets, and the ECB "has enough tools" for this.

In the light of such rhetoric, currency strategists of the main European banks warn that the ECB can not only renew QE in the fall, but also lower the interest rate. In particular, according to analysts of the largest French bank Societe Generale, the regulator in September will cut the deposit rate by 10 basis points and announce the beginning of a stimulating program that will provide for a monthly purchase of assets in the amount of 40 billion euros. At the July meeting, according to analysts, the regulator widely announces easing of monetary policy. Therefore, the main reaction of the market regarding these steps will be in July, not in September.

However, the euro is already acting out such intentions of the ECB, being under background pressure. The only question is how aggressive the regulator's steps to mitigate monetary policy will be. Almost no one doubts that the ECB will follow this path.

That is why the potential for corrective growth of the EUR/USD pair was initially limited. Bulls could not take advantage of the temporary weakness of the dollar (which was due to rumors about Trump's intentions to devalue the currency through interventions) and go to the 13th figure. The pair touched the first resistance level of 1.1290 (the average line of the Bollinger Bands indicator on the daily chart) and headed towards the middle of the 12th figure. The formal reason for the downward pullback was published by the Federal Reserve Bank of New York's Empire State Manufacturing Index. In June, the indicator fell to a negative area (for the first time in 3.5 years), which alarmed dollar bulls. But today the index showed a positive trend, although it remained at relatively low values (4.3 points). The dollar reacted positively to this release, despite the fact that the employment component has remained at the lowest values since the fall of 2016.

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Thus, the dovish intentions of the ECB exert background pressure on the euro, and this fact is a difficult "anchor" for the EUR/USD pair. The weight of this burden may intensify tomorrow, if the sentiment index in the business environment from the ZEW Institute (in Germany and in the whole of the eurozone) goes even deeper into the negative area. Given the high likelihood of a hard Brexit, the pessimism of the European business sphere will most likely grow and exponentially, will place additional pressure on the euro. In turn, the dollar will focus on retail sales tomorrow. This indicator may show negative dynamics, especially without car sales.

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In other words, if political factors do not mix the cards of the fundamental picture, then weak US data will partially compensate for weak European indicators, especially in the light of the dovish intentions of both the ECB and the Fed. All this will lead to the fact that the pair will fluctuate in the price range with an upper ceiling of 1.1300 (Kijun-sen line on D1) and a lower limit of 1.1225 (the upper and lower boundaries of the Kumo cloud on the daily chart coincide at this price point). If the bears push the lower limit, the next support level will be the mark of 1.1160 - this is the bottom line of the Bollinger Bands indicator on the same timeframe.

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Wave analysis of EUR / USD and GBP / USD for July 15. Markets await Jerome Powell's new performance.

EUR / USD

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On Friday, July 12, trading ended for EUR / USD by another 20 bp increase. Thus, the departure from the previously reached lows around the level of 0.0% Fibonacci continues. And at the same time, it remains unclear whether the construction of the upward section of the trend, taking its beginning on May 23, has been completed or will it still take the 5th wave form (or, at least, will the wave become more complicated)? The news background on Friday was very weak and did not help either the dollar or the euro. Today, the situation in this regard does not change at all, since news and reports are not expected. But tomorrow there will be another speech by Jerome Powell, Fed Chairman. And although he is unlikely to be able to surprise the markets with anything, an event of this magnitude should not be missed. Because new hints on the Fed's readiness to ease monetary policy may again trigger euro purchases and dollar sales. This is exactly what is needed for the current wave marking, which still implies the construction of an upward trend.

Purchase goals:

1.1417 - 100.0% Fibonacci

1.1480 - 127.2% Fibonacci

Sales targets:

1.1180 - 0.0% Fibonacci

General conclusions and trading recommendations:

A pair of euro / dollar presumably remains in the upward trend. I recommend to buy euros with targets located near the estimated marks of 1.1417 and 1.1480, which equates to 100.0% and 127.2% of Fibonacci, and an order restricting possible losses, under the minimum of wave 2 or b. Leaving the tool below the 0.0% level will require making adjustments to the current markup.

GBP / USD

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The pair GBP / USD rose on July 12 by 50 basis points and continues to move away from local minima. However, the estimated wave e still does not look fully manned, which suggests a resumption of the decline of the pound sterling in the coming days. Support for this option may be found in the news background, which with enviable stability is not in favor of the British currency. There are no positive shifts in the Brexit process, and the country continues to choose a new prime minister. Jeremy Hunt fears new parliamentary elections, and London managed to get into a scandal with Donald Trump, as the British ambassador to the US got in touch where he was unflattering about the president of the USA. Trump has already hinted that this incident could have serious consequences for the relationship between Washington and London.

Sales targets:

1.2418 - 161.8% Fibonacci

1.2334 - 200.0% Fibonacci

Purchase goals:

1.2783 - 0.0% Fibonacci

General conclusions and trading recommendations:

The wave pattern of the pound / dollar instrument involves the construction of a downward wave e. Thus, I recommend selling the pair with targets located near the estimated marks of 1.2418 and 1.2334, which corresponds to 161.8% and 200.0% in Fibonacci, when the MACD signal is down.

The material has been provided by InstaForex Company - www.instaforex.com

China is not afraid of trade wars, positive growth strengthens AUD and NZD

The US dollar shows a tendency to weaken at the opening of trading on Monday. Apparently, the dovish rhetoric of Powell in Congress with a simultaneous increase in stock markets and commodity prices have reassured investors. Futures on the S&P 500 updated the record, reaching 3019p on Monday morning and trading above Friday's close indicates positive growth. The Nikkei and the Shanghai Composite started the week with growth, which generally indicates benign sentiment and the stability of commodity currencies.

Data on the economy of China, which was published on Friday and Monday, showed that the Chinese economy has a significant margin of safety amid the protracted trade war with the United States. Despite the fact that the increase in tariffs led to a decrease in exports, the level of business lending remains high and the industrial production in June showed an increase of 6.3%, as well as the retail sales by 9.8%. Both indicators are significantly higher than forecasts. The GDP growth in the 2nd quarter amounted to 1.6% year on year growth of 6.2%, which coincided with expectations. It is obvious that China has a significant reserve for domestic demand, which makes it capable of supporting the growth of the economy of the Middle Kingdom even against the background of a toughening trade war.

NZD/USD pair

The index of business activity in the manufacturing sector of New Zealand continues to balance slightly above 50p to 51.3p compared to growth in June of 0.9p, which is slightly higher than the May level of 50.2p. However, it is significantly below the forecast. Last time, we noted that the slowdown in manufacturing activity in Q2 remained and indeed, activity was below the long-term average of 53.4p for the fourth consecutive month.

The slowdown in the economy and fears of inflationary expectations led the RBNZ to lower interest rates, which immediately affected bond yields, following the US inversion of the yield curve reached New Zealand.

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As can be seen from the graph, the inversion does not necessarily end with a recession, unlike in the United States, but it cannot be ignored. The economy of New Zealand significantly depends on the state of the economies of the two main trading partners - the United States and China. Thus, the main risks will still come from external factors. The reduction in the rate of the RBNZ is a consequence of the threat of a slowdown in GDP growth to a lesser extent and a worsening of inflationary expectations to a greater extent. Therefore, the inversion of the yield curve has less attention than a similar indicator in the United States.

For New Zealand, this indicator gives false signals as it was at the end of 2014 and in the middle of 2016. Moreover, the RBNZ is unlikely to pay close attention to inversion. This means that it is hardly correct to expect additional measures to stimulate the economy on the part of the regulator since a number of other equally important indicators do not give cause for concern such as financial conditions with a decrease in the RBNZ rate and the NZD rate have improved. There were also fears about a fall in household income that was not yet confirmed. Nonetheless, the budget is stable and the planned increase in spending will have a positive impact on inflation.

In general, the picture for kiwi continues to remain neutral. The RBNZ will monitor the Fed's actions and the markets are ready for two rate cuts in August and November, but there is no reason for a deep decline in NZD/USD pair. The dollar looks weak and a resistance test at 0.6720 is likely. Growth will continue to the border of the channel 0.6805/15.

AUD/USD pair

A number of indicators last week indicates a downward trend in economic confidence, particularly the NAB business confidence index dropped by 5 points in June and is below the long-term average, as well as the Westpac-Melbourne Institute's consumer sentiment index dropped to 96.5p, which indicates an increase in pessimism. Also, the ANZ consumer confidence index of Roy Morgan fell by 1.1% in the first week of July.

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At the same time, these trends do not cause much concern as inflationary expectations remain high. They are based on the fact that the minimum wage in Australia as of 2018 was the highest in the world.

Aussie goes in a general positive flow as the week will start with its growth. The AUD/USD pair will move towards a strong resistance of 0.72 and support of 0.6965, but there is little reason to decline.

The material has been provided by InstaForex Company - www.instaforex.com