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The illusion of growth: the euro is splurging

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The power in the House of Representatives passed into the hands of the Democrats. This not only split the Congress, but also returned hope for the return of "old America". The Republicans won the Senate, taking Indiana, North Dakota from their opponents, and took one empty seat in Tennessee.

The dollar is stunned and retreats across the entire spectrum of the market, including risky assets.

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The idea of Donald Trump to reduce taxes by 10% for the middle class, apparently, was not destined to materialize. Such a decision could be a fresh driver for the dollar index next year. Representatives of the Democratic Party, probably will not stimulate the economy, which already looks overheated. Therefore, we can safely talk about the end of the economic cycle, the uptrend of the dollar and the presidency of Donald Trump.

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Traders realized that the policy was firmly established in the life of financial markets, and developed certain strategies. Tension increases with the approach of an event. When the result becomes known, the markets switch to the same drivers. Currently, bearing in mind the EUR / USD currency pair, these are trade wars, Italy, and the central bank rates.

Italy has not responded to the requirements of the EC members to adjust the draft budget with a deficit of 2.4%. Such a calm usually happens before the storm. Rome does not have a backup plan, the authorities unconditionally believe in the ability of GDP to reach a growth level of 1.5%. That's just not clear how. In the third quarter, the economy showed a zero rise, the composite index of business activity fell in October below a critical 50, which is the worst result in 5 years. The volcano will wake up in a couple of weeks, but for now the euro has the opportunity to show off a little.

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The latest developments have brought a breathtaking breath of fresh air to the Eurozone. The thaw in relations between the United States and the People's Republic of China, as well as the results of the American elections, make it possible to hope for a return to globalism from protectionism. This will positively affect foreign trade.

As for the trade war, it is unlikely to be stopped even after the meeting between Donald Trump and Xi Jinping. However, people often wishful thinking. The "bulls" on EUR / USD until the end of November have at least one more reason for attacks.

This month, the market is waiting for the Fed meeting. If the accompanying statement of the regulator focuses on slowing inflation in the fall, this can be perceived as a manifestation of "dovish" sentiment. Traders will begin to actively sell US currency. Taking into account the highest speculative net longs on the dollar since the beginning of 2017, one should expect a rapid growth of EUR / USD in the direction of 1.15–1.158.

The rhetoric of the Fed's leadership may be hawkish. If the speech in relation to GDP and the labor market is optimistic, officials will say about their readiness to bring monetary policy to moderately tight, then the bears on the main pair will have to unfold the quotes in the short term.

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