Will the dollar fall from the pedestal?

How much rope does not curl, and the end is always one. After a report on US employment in November, it became clear that the US dollar rally had come to an end. If someone hoped that, thanks to strong statistics, the heyday of the economy would be extended, then a slower growth in average wages (+ 0.2% m / m) and employment outside the agricultural sector (+155 thousand), than experts Bloomberg had expected, caused a serious blow to his faith. The idea of slowing US GDP hovers again above the markets, forcing to buy EUR / USD.

The fundamental analysis is based on the principle "a strong economy - a strong currency", but you need to understand that the current values of key indicators mean little to the future dynamics of the exchange rate. The question is what is the trend. In this regard, a slowdown from 4.2% in the second to 3.5% in the third and to 2.7% q / q in the fourth, as predicted by the leading indicator from the Atlanta Fed, indicates a depletion of the fiscal stimulus effect. If Donald Trump and his team do not persuade Congress to expand the scope of tax reform, it will be possible to forget about repeating the successes of the current year. And this means that it is time for the US dollar to leave the pedestal.

Dynamics of US GDP


On the other hand, we see the euro, which is not sparkling with success, whose purchases are unsafe. The slowdown in eurozone GDP to 0.2% q / q, the inability of core inflation to go far from the 1% mark, the political crisis in Italy and Brexit seem to be serious deterrents for the bulls in EUR / USD. At the same time, a truce in the US and Chinese trade war creates prerequisites for improving global demand, which is extremely important for the export-oriented economy of the currency bloc. Add to this the potential recovery of the German automotive industry after a serious downturn in July-September, and the picture begins to change. The ECB's belief that the eurozone will stand on its feet can be realized. If the British parliament supports Teresa May, and Rome makes concessions, the main currency pair is quite capable of realizing the median forecast of Reuters experts. More than 60 strategists believe that the end of 2019 euros will cost $ 1.2.

Thus, the "bears" in EUR / USD are cause for concern, while the "bulls" - for hope. Another thing, can the above scenario be realized? Expand Donald Trump's scale of tax reform, renew the trade war, or cause political chaos in Britain, not a single European currency. In addition, selling the dollar on the eve of the FOMC meeting, which is likely to raise rates, is dangerous. If so, the main currency pair risks continuing to consolidate until the December Fed meeting. Unless, of course, strong statistics on US inflation or the dovish rhetoric of the ECB pushes it lower.

Technically, the consolidation of EUR / USD in the trading range of 1.13-1.15 in the framework of the implementation of the Splash and Shelf pattern continues. A break of the upper boundary will increase the risks of growth of the pair in the direction of 1.169 and 1.175. On the contrary, a successful storming of support at 1.13 will open the way for the bears to the south.

EUR / USD, the daily chart


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Traders bet that the Fed is slowing rate hike next year


Traders said the Federal Reserve Fund would need to slow down the rate of rate hikes next year after a government report showed that employers hired fewer employees in November than expected.

Added just 155,000 jobs last month, significantly less than the expected 200,000, this further exacerbates growing doubts in financial markets that the Fed will adhere to the strategy of three rate hikes over the next year. Recall doubts about the Fed rate hike in 2019 were recently caused by a significant sell-off in the stock market and heightened fears about a slowdown in the economy and the weakening effect of tax incentives in the United States. Recent comments by Fed Chairman Jerome Powell about the need for a "slowdown" under uncertain conditions added skepticism that the Fed could continue to raise rates just as aggressively.

Currently, more and more experts are inclined to believe that next year the Fed will make only one approach no earlier than the middle of the year. The published report is not weak enough to refuse to raise rates in December, but it will definitely contribute to the revision of the Fed's policy on raising rates in 2019.

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What is waiting for the dollar? How does negative employment data affect currency?


The dollar began to fail and will end the week with a fall. The alarming comments by the head of the Fed, the inversion of the yield curve of US government bonds, and now also the slowdown in the growth of employment and monthly wages. New data suggest a decline in economic activity, which may be a reason for the Fed not to rush to raising interest rates next year.


Although the dollar index versus the basket of major currencies declined, in general, there was no large-scale collapse, even with such tremendous pressure on the currency. Concerns about the recession and the subsequent recession are growing, and if the market gives way to panic, the situation can get out of control. Experts note that the weakest in the last 8 months the rate of employment in the non-agricultural sector may be due to earlier than usual cold weather and lack of qualified personnel. Unemployment remains unchanged, at the 49-year low of 3.7 percent. Average hourly earnings in November rose by only 6 cents, or 0.2 percent after they rose 0.1 percent in October. Wage growth was moderate, despite the fact that the Internet giant Amazon has increased the minimum wage to $ 15 per hour due to tighter labor market conditions. Companies also cut working hours. The average working week was reduced to 34.4 hours from 34.5 hours in October. The employment report may increase concerns about the health of the economy and reduce the likelihood of the Fed raising interest rates next year. The December increase, these data are likely to not affect.


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OPEC + countries agreed to reduce oil production by 1.2 million barrels per day


Iranian Oil Minister Thamer Al-Ghadban told reporters that the Organization of Petroleum Exporting Countries (OPEC), after many hours of negotiations, agreed to further reduce world oil production by 1.2 million barrels per day during the first half of 2019. In April of the next year, the terms of the deal are revised.

According to Al-Ghadban, 800 thousand barrels per day from the total reduction will be in OPEC countries and 400 thousand barrels in countries outside the cartel. Thus, each country participating in the agreement should reduce oil production by about 3%. October 2018 was taken for the base month from which the reduction will be calculated.

At the same time, Russia agreed to reduce its production by only 150 thousand barrels per day. Iran has made exceptions for itself from the deal to restrict production, while illegal US sanctions are in effect.

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Consumer prices in Brazil fell another 0.21%


The level of consumer prices in November in Brazil fell by 0.21% compared with the previous month, to a maximum of 1.5 years, while analysts predicted a decline of only 0.09%.

The rate of inflation in annual terms last month decreased from 4.56% to 4.05%.

Experts believe that the deflationary trend will continue, and by the end of the year, the inflation rate will be about 60 basis points lower than the target 4.5%.

Since March 2018, the Central Bank of Brazil has kept its benchmark interest rates at a record low of 6.5% amid deflation, while investors are lowering their expectations for tightening monetary policy in 2019.

Brazil's central bank forecasts a country's GDP growth of 1.39% in 2018 and 2.5% in 2019.

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EUR / USD: The euro may rise in the near future, as traders once again ignored weak data for the euro area

Weak data on the eurozone economy, which came out in the first half of the day, especially for industrial production in Germany, did not affect the quotes of the European currency, which continued to trade sideways in tandem with the US dollar in anticipation of an important report on the number of people employed in the US non-farm sector.

According to the Federal Bureau of Statistics of Germany, industrial production in Germany in October of this year dropped sharply compared with the previous month due to a decline in the manufacturing industry and construction. The energy sector was also negatively affected by the indicator, which also showed poor results.

According to the report, industrial production, which includes the above three indicators, in October decreased by 0.4% compared with the previous month. Economists had expected production to grow by 0.4%.

Industrial production in France, on the contrary, increased in October of this year after a serious fall in September, where the decline was 1.9%, instead of the previously declared 1.8%. According to the report, industrial production in France grew by 1.4% in October, while economists had expected production to grow by only 0.7%.

Despite the growth, it is hardly possible to say that the eurozone economy is in perfect order. Rather, on the contrary, the latest data more and more suggests that the growth rate of the eurozone economy in the 3rd quarter was slower than previously thought.

According to the statistics agency Eurostat, the eurozone's GDP in the 3rd quarter of this year showed an increase of only 0.2% compared to the 2nd quarter and increased by 1.6% over the same period of the previous year. On an annualized basis, GDP growth in the eurozone was 0.6%, not 0.7%, as previously reported.


The main reason for the slowdown in economic growth was the decline in exports, while an increase in reserves, on the contrary, stimulated growth. The measures were taken by the White House to impose trade duties led to a weakening of foreign trade, which put negative pressure on the growth of the eurozone economy in 2018.

Despite the fact that a number of economists expect some recovery in the eurozone in the 4th quarter of this year, the European Central Bank needs to seriously think about the need to curtail its asset repurchase program, which is expected to be fully completed this month.

As for the technical picture of the EUR / USD pair, today much will depend on the data on the change in the number of people employed in the US non-farm sector. The main goal of the buyers will be the renewal of large resistance around 1.1420, a breakthrough of which will lead to the formation of a strong upward impulse in the euro. In the case of a decrease in the trading instrument, support can be sought in the area of the minimum of the week from the area of 1.1315-1.1325. Otherwise, it will be prudent to open long positions in risky assets after testing large lows around 1.1270.

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The currency pair of EUR / USD waiting for a roller coaster


The foreign exchange market on the eve fought off information negatives USD / JPY fell to the new monthly minimum, and the stock market went down, US assets suffered the most. Earlier this week, no one could have imagined that US indices would test October lows. So, the Dow Industrial Average lost more than 750 points in the trading on Thursday.

Now, traders have focused on the monetary policy of the Fed. The topic of the trade conflict between the US and the PRC went into the background after the presidents exchanged curtsies.

The derivatives market estimates at 34% the possibility of maintaining the federal funds rate at the current level in 2019, the risk of one tightening at 36%, four, at insignificant 4%. Judging by the "pigeon" rhetoric of the FOMC representatives, it cannot be any other way. Thus, the head of the Atlanta Federal Reserve Bank Raphael calls for caution, his colleague from Dallas, Robert Kaplan, declared the need for patience, and the head of the Federal Reserve Bank of New York, John Williams, talks about a soft landing. The main task of the regulator, according to them, should be to smooth the effect of the fall in economic growth rates after reaching peak values this year.

At the same time, Jerome Powell, almost before the publication of the labor market report, focuses on his strength, and an unexpected positive from business activity in the non-manufacturing sector of the country raises doubts about the expected slowdown in US GDP in the fourth quarter.

Contradictions between FOMC members and the indications of the derivatives market, on the one hand, and strong statistics, on the other, force large banks to publish forecasts that differ significantly. For example, JPMorgan, Goldman Sachs, Barclays BARC, BofA Merrill Lynch are extremely optimistic, expecting as many as 4 rate increases over the next year. According to estimates by Morgan Stanley, Citigroup and Societe Generale, policy tightening will be held 2 times a year.

Impressive employment figures in the United States for November should increase the chances of 2-3 rate hikes in the new year. At the same time, the belief of market participants in slowing down the US economy is growing stronger every day, and strong statistics on the labor market will allow large investors to dump a dollar when everyone grabs it like hot cakes.

The disappointing US non-farm employment report, unemployment, and wages will definitely lead to buying EUR / USD on resistance breaks at 1.1425 and 1.1445. Positive, with a high degree of probability, will allow the main pair to quickly roll down from the mountain.


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The failure of the transaction of the Russian Federation and OPEC will push WTI below $ 40


The organization of the countries-exporters of oil at the meeting did not agree on reducing the volume of oil production. Russia is still shaking off large restrictions imposed by representatives of Saudi Arabia.

Negotiations took place over two days in Vienna. Khalid al-Falih, Saudi Minister of Energy, is almost certain that at the Friday meeting, the cartel representatives are unlikely to reach an agreement with the allies. The idea to reduce the total production of OPEC + by 1 million barrels per day stuck in the air.

"Not everyone is ready to cut evenly. Russia is not ready for significant volume reductions," Al-Falih told reporters. If Russia, the cartel's key partner, agrees to a significant reduction in performance, OPEC is likely to follow its example.

In the meantime, oil may fall in price, and the WTI variety risks falling below $ 40 a barrel if attempts to convince Russia to implement the agreement are not crowned with success, analysts predict Bloomberg Intelligence.

"We believe that production should be reduced by 1.7 million barrels per day to support prices," experts write.

WTI oil has not dropped below $ 40 since the end of July 2016, it has been emphasized in Bloomberg.

On Friday, February futures for the American mark continue to decline after closing on Thursday at the level of $ 51.49 per barrel (minus $ 1.4). Brent with the same month of delivery is also anxiously awaiting the decision of the OPEC + countries.


Since May, Saudi Arabia has increased oil production by 1.15 million barrels per day. In Russia, the figure increased by 400 thousand barrels per day. Two big earners want the cut to be common to all. In this case, the share of both countries will grow at the expense of smaller producers, who, by the way, resist calls for reducing the volume of injection of black gold.

According to the forecasts of Bloomberg Intelligence experts, OPEC and other countries will decide to reduce production as a result. However, this will not be enough to balance the market. The fact is that small oil producers will not conscientiously fulfill their obligations if the Russian Federation and Saudi Arabia do not take on the greatest part of the burden of reducing production.

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