The collapse in the markets as a foreshadowing of a new recession

As we expected, optimism in the global markets, caused by agreements on customs duties between the United States and China with a deadline of 90 days, did not last long. Fears that neither this event nor the stimulation of the local economy by China is unlikely to save the world economy from a slowdown in growth have grown again.

On Wednesday, the decline in Asian stock markets continued after the collapse on Tuesday of the US stock market. Investors have fully begun to fear the stalling of the US economy into recession. The yields of US Treasury government bonds continue to fall, and the yield curve of 3 and 5-year-old T-Bond is increasingly bogged down in negative territory, demonstrating inversion. Earlier in the late twentieth century, as well as at the beginning of the twenty-first century, such a dynamic anticipated the beginning of a slowdown in the growth of the American economy with its subsequent collapse into recession.

Against this background, after a relatively small depreciation of the dollar, its quotes began to grow again, which can be explained by the growing demand for defensive assets and, above all, the US currency. On this wave, taking into account the historical experience, it can be assumed that the further preservation of negative sentiment may in the future continue to support its course.

The continuation of the publication of GDP data of economically developed countries after the United States, China and the Eurozone with Germany indicates that the most serious fears associated with a slowdown in the growth of the world economy are justified. The publication of the Australian GDP on Wednesday clearly indicates this. It was assumed that the macro indicator in annual terms will show a decrease in growth to 3.3% from 3.4% in the third quarter, and it fell to 2.8%. Its quarterly value also dropped significantly in growth, to 0.3% from 0.9% against the background of expectations of a decline to 0.6%.

The Australian dollar reacted to this news with a noticeable depreciation paired with the US dollar. And all currency pairs in the big Forex, where the US dollar is present, have shown its growth.

Evaluating the emerging dynamics in the markets and the growth of fears about the prospects for the global economy, we can assume that the dollar can be in demand against major currencies in the short term, despite a likely and even expected pause in the Fed's interest rate increase next year.

Forecast of the day:

The AUD / USD currency pair fell amid weak Australian GDP data. If it keeps below the level of 0.7300, then its fall is likely to continue to 0.7250.

The USD / CAD currency pair is trading above 1.3255 amid falling crude oil prices, which are under pressure as a result of the release of data on US oil reserves, which showed their growth, as well as a decrease in the risk appetite of investors. If the pair holds above this mark, it can continue to rise to 1.3380.

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