US and China: Progress in negotiations with China can support the US dollar. The growth potential of the euro is limited.

The US dollar continued to lose its position against the euro in the second half of the day on Monday, after data came out indicating activity in the US services sector in December of this year, which was growing at a much slower pace than expected. This indicates a worsening economic situation.

According to the Institute for Supply Management, the PMI Purchasing Managers Index for the non-manufacturing sector of the United States fell in December 2018 to 57.6 points versus 60.7 points in November, while economists had forecast a decrease in the index to 58.4 points. Let me remind you that the values of the index above 50 indicate an increase in activity.


Fed Representatives

The statements that were made yesterday by representatives of the Federal Reserve have put only pressure on the US dollar, as once again confirmed concerns about the slower changes in US monetary policy this year.

Fed spokesman Bostic said that the US economy is in pretty good shape, and its growth prospects are positive. He also drew attention to the fact that if the suspension of the government continues, it could have a significant impact on the economy.

Let me remind you that for the third week in a row, part of the organizations of federal agencies in the United States is not working, while the White House is making more and more efforts to persuade public opinion in favor of building a wall on the border with Mexico, while Congress opposes additional financing for the construction of the wall that does not allow to accept the budget.

The representative of the Fed also noted that market volatility is a potential cause for concern, and therefore, it is likely that a slowdown in GDP growth in 2019. According to Bostic, the neutral level of interest rates is in the range of 2.5% -3.25%, however this year he expects only one increase in them.

Cleveland Federal Reserve Bank President Loretta Mester also spoke yesterday, who confirmed that the central bank would be more flexible in raising interest rates this year, since inflation remains at a fairly moderate level, and economic growth is slowing.

US and China Negotiations

Meanwhile, during today's Asian session, the US dollar regained some positions after the United States and China embarked on two-day talks to resolve the trade conflict between countries. If a representative of the two countries manages to agree on the details that will allow Beijing to fulfill its promises, the demand for the US dollar may return, as such news will stimulate the future growth rates of the US economy, as well as provide medium-term support for the dollar.

We are talking about promises with the Chinese side to resume China's purchase of American goods and services, as well as to facilitate access for American companies to Chinese markets.

As for the technical picture of the EUR / USD currency pair, a downward correction is gradually maturing, which will be restrained by large support levels around 1.1400 and 1.1350. It is best of all to consider short positions in risky assets after unsuccessful attempts to return to a trading instrument for resistance to 1.1470.

The material has been provided by InstaForex Company -