The dollar will receive support this week

After the wave of optimism that has spread in the foreign exchange market regarding the prospects for a possible increase in interest rates in Australia after the RBA's meeting on Tuesday, these sentiments have changed on Wednesday.

This market behavior can be explained by the expanded commentary of the head of the RBA Philip Lowe, who, trying to be optimistic about the prospects for the Australian economy, made it clear that the economy may be weaker than the Central Bank believes. He noted that the next step of the regulator could be both a rise in the key interest rate and a decrease. These are his keywords and became the cause of a strong, almost one figure, the fall of the Australian dollar against the US. Earlier, the pair received support not only on the wave of the "American" weakness but hopes that the RBA this year will decide on raising the cost of borrowing.

In essence, his comment, in our opinion, signaled that the bank maintained a neutral position for an indefinite period of time, since so much will depend on external factors, such as the trade relationship between the United States and China, which have already damaged the latter, will also have a negative impact on the raw, generally export-oriented, economy of the "green continent".

In general, in the foreign exchange market, the US dollar began to receive support again. It seems to us that the reason for this is not the strengthening of its positions, but a new wave of weakening the positions of his "opponents" in the foreign exchange markets. This is due to the growing awareness among market players of the fact that there are already signs of a slowdown in the US economy. So, the publication of a number of important economic data on Tuesday clearly indicates this.

According to the data presented, the non-manufacturing business index (PMI) from ISM in January showed a noticeable drop to 56.7 points against the December value of 58 points and a forecast of a decline to 57.2 points. Markit's Composite Business Activity Index (PMI) fell to 54.4 points from 54.5 points, while the expected performance of the indicator was expected to remain. And the IBD / TIPP economic optimism index came close to the "Rubicon", the level of 50 points, followed by the negative dynamics - 50.3 points versus 52.3 points for the previous period under review.

In our opinion, the strengthening of the dollar in this situation occurs on the wave of increasing its demand as a refuge currency. If this market sentiment continues, by the end of this week, the dollar will receive support.

Forecast of the day:

The currency pair EUR / USD is below the level of 1.1400. We continue to expect it to fall to our target levels of 1.1375 and 1.1320.

The currency pair GBP / USD is trading below the level of 1.2985. Uncertainty around Brexit continues to push the pair down. It has already fallen to our target level of 1.2945. Fixing the price below 1.2985 opens the way down to 1.2830.



The material has been provided by InstaForex Company -