The dollar should be bought on a decline

World markets, no matter how tired, are still in captivity situation that revolves around trade wars, which forces investors to show a high degree of caution, and the US dollar to consolidate against major currencies, then going on the offensive, then surrendering positions.

This state of affairs has a strong influence on the largest central banks, which, noting the uncertainty factor produced by the Americans, are constrained in the decisions on monetary policy. We have repeatedly noted that the factor of trade wars is dominant in the world financial markets. The consequences of this phenomenon are not fully understood by anyone, but what is clear is that its tightening is more likely to destroy the world economy, and only then will its new shape be formed. But before this happens, it can go through another global crisis.

The fact that the risks are very high demonstrates the beginning of the deceleration of business activity in the manufacturing sector, the second most powerful in the world economy, the Chinese economy. After the spring of the States announced their desire to introduce, as it seems to them, a more equitable trade relationship with China, the EU, Mexico, Canada. In fact, with the whole world, dangerous trends began to occur. So, the Chinese index of business activity in the manufacturing sector (PMI) turned down and continues to decline confidently. According to the data released on Monday, he approached the dangerous line, to a kind of "Rubicon", to the level of 50 points, showing in August a decrease in growth to 50.6 points from 50.8 points. Recall that the decline of this indicator below 50 points will indicate the beginning of a slowdown in this sector of the economy. And this, most likely, will become a catalyst for other sectors of the economy, which will serve as a signal for its braking.

Against this background, Chinese producers will buy less raw materials, which will undoubtedly hit the economies of countries such as Australia and New Zealand, whose exports are very closely connected with China. This will serve as a catalyst for slowing economic activity in other countries, which can hit the global economy.

The Americans hope that this punishment will pass them, but, it seems to us, this is a delusion. The United States will also suffer. The general decline in business activity in the world can become a prologue to the onset of a new economic recession and the onset of a crisis. Proceeding from this, we believe that in many respects, the artificial growth of US stock indices will stop, demand for the commodity and raw materials will decrease, and protective assets will still be in demand. Given such probable prospects, we believe that the US dollar as a safe-haven will continue to be in demand, so it makes sense to buy it on local declines.

Forecast of the day:

The currency pair EUR / CHF is trading above the level of 1.1235. Deteriorating sentiment in the European market may become a catalyst for continuing the price decline to 1.1125 after its crossing this level.

The currency pair GBP / USD is trading above the level of 1.2850. We consider it possible to sell it if the price falls below this mark with the target of 1.2800.

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