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Trump and Batman: find the differences (high probability of AUD/USD pair decline and EUR/USD pair recovery)

The mood of investors in world markets has somewhat improved on Tuesday due to new injections of "optimism" by the American president regarding negotiations with Beijing on trade. Trump has long been a newsmaker and conducts financial markets to his advantage.

In recent months, a strong link has been established between Donald Trump's actions as president and the local stock market. If a few months ago, it was the dynamics or rather the collapse of the stock market and the rise of interest of market players in government bonds of the US Treasury that made Trump declare the need for the Fed to reduce interest rates and generally support the growth of stock indexes in every way, but now the opposite is true. By his decision to tighten the US position on trade negotiations with Beijing, the president meant raising customs duties of up to 25% on Chinese imports in the amount of $ 200 billion caused by the collapse of the local stock market, which naturally pulled the world markets along. And here, Trump began to save him, like Batman, with his Twitter entries in every way extolling the trade negotiation process. Moreover, the stock market did not remain in debt, as they say. It "rose up", however, it was not able to manage to compensate for the loss of Monday.

This behavior of investors can be explained by the exercise of caution since it is already clear to everyone that negotiations have reached an impasse and can completely fail. But, oddly enough, the market is trying not to lose heart, hoping that the escalation of the trade war will ultimately force the Fed to lower interest rates to compensate for the impact of increasing customs duties and perhaps even in the near future. The regulator will have to resort to incentive measures, which will be positive for the growth in demand for risky assets and of course, this will put pressure on the US dollar as it was after the 2008 crash.

Such a scenario keeps the dollar from its noticeable growth against competing currencies but at the same time there are still concerns that the US will fall into recession, in which case, the dollar will be in demand on the contrary. In general, the situation of uncertainty, which is already fed up with everything, will continue to generate high volatility in the stock and commodity markets. But it seems that currency markets will continue to stagnate until the situation with the prospect of not only trade relations between Beijing and Washington but also the world economy, which is completely cleared up.

Forecast of the day:

The EUR/USD pair is trading above the support level of 1.1200, forming the "ascending flag" figure. If this level resists, we should expect a price increase to 1.1270. At the same time, its breakthrough may lead to a promising local price drop to 1.1125.

The AUD/USD pair remains under pressure in the wake of the uncertainty of the outcome of negotiations on trade between the US and China, as well as the publication of weak data on industrial production in China. The preservation of the negative can stimulate further price reduction first to 0.6900 and then to the local minimum of January 2016 at 0.6825.

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