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Forex Traiding

Markets are entering uncharted territory, the USD is trying to shrug off the bearish story and get the most out of the current


In recent days, global markets have been hot and cold. Key US stock indexes rose sharply on Monday after a bad ending last week. At the same time, Dow Jones has shown the maximum rise since March 5. Against this background, the protective dollar, which on Friday strengthened to 92.40 points, sank about 0.5% the day before, dropping to 91.83 points. Echoes of the latest Fed meeting are still being heard in the markets. On the one hand, the regulator announced that the key rate could be raised earlier than expected, on the other hand, it said that it will continue to buy back assets in the amount of $ 120 billion monthly until significant progress is made towards the goals of maximum employment and price stability. According to experts, even greater uncertainty is to be expected on the eve of the next meeting of the American Central Bank in July and its annual conference in Jackson Hole at the end of August. In the absence of a clear idea of ​​the future course of the regulator, the focus of attention of investors is focused on the comments of the Federal Reserve officials. On Monday, Dallas Fed President Robert Kaplan reiterated in favor of the Fed beginning to phase out bond purchases, pointing to a good labor market situation and signs of accelerating inflation. Meanwhile, the head of the Federal Reserve Bank of New York, John Williams, said yesterday that he was not ready for the American Central Bank to refuse the support it provides to the national economy, amid uncertainty about the pace of recovery from the consequences of the pandemic. The President of the Federal Reserve Bank of New York expects inflation to fall from about 3% this year to almost 2% in 2022 and 2023. Today, all eyes are on the head of the Fed, Jerome Powell, who will address Congress. The text of the Fed chairman’s speech released the previous evening is broadly in line with his comments after last week’s FOMC meeting. Then J. Powell admitted that in recent months inflation has risen markedly, and bottlenecks in supply chains were more serious than expected. However, the Fed still considers this to be a temporary phenomenon. The regulator’s median inflation forecast for 2022 is 2.1%. “The Fed is almost always late with things like this,” said RBC Capital Markets. They believe that by the end of 2022, core inflation in the US could be higher – just under 3%. “This is not 2% inflation,” the bank’s strategists said, noting that this would ultimately put pressure on the Fed to raise interest rates. “However, we have no doubts that with this 2% forecast as a cover, J. Powell will try to reduce the likelihood of a rate hike next year. But just as he eventually dampened the tapering rumors, he may also dampen the rate hike talk. Just give it more time, ”they added. If the markets continue to push the Federal Reserve towards a tougher policy, the euro against the US dollar could fall by about 2% more, analysts at The Goldman Sachs predict. At the same time, they do not expect a stable strengthening of the American currency and continue to adhere to the basic “bearish” scenario for the USD. “In light of the improvement in economic indicators in the United States and the ongoing reassessment of expectations in a hawkish direction regarding the Fed’s policy, we see short-term upside risks for the dollar in the amount of 1.5-3.0%,” the bank’s experts said. “However, we see no grounds for a stable strengthening of the American currency. First of all, this is due to the fact that our expectations regarding the Federal Reserve are much more “pigeon” in comparison with those that the markets are now putting into quotations. According to our estimates, by the end of 2023, the regulator will implement only one rate increase, while the markets include three increases in prices, ”they added. Greenback was able to recover somewhat from Monday’s pullback below 92.00. According to analysts at UniCredit, the dollar is now struggling to continue the growth of the previous days after the Fed meeting, when the regulator announced a possible increase in the key rate as early as 2023. On Tuesday, the US currency is moderately strengthening against its main competitors, including the euro, ahead of the speech by Fed Chairman J. Powell. His comments are likely to be aimed at calming the markets again. The chairman of the Federal Reserve may once again declare the temporary nature of inflation, as well as that the cycle of monetary policy normalization will begin only in 2023. This will support risky assets and put pressure on the safe dollar. If J. Powell confirms that a debate has begun at the Fed on tightening credit conditions, the dollar may rise even more. The single currency is likely to fall to $ 1.18 due to the prospect of tightening monetary policy in the US, while the eurozone will maintain an ultra-soft monetary policy, according to UniCredit. “The prospect of accelerating Fed tapering while the eurozone is still considering additional stimulus does not bode well for the single currency,” said the bank’s strategists. EUR / USD recently fell below 1.1920 (61.8% Fibonacci retracement level) and is now a minor resistance level. More important now is the 1.2000 mark, near which the 200-day moving average is now passing, note in Saxo Bank. “If the market fears that the Fed will soon cut back on asset purchases again, and expectations for rates will rise further, then the cut line in the head and shoulders pattern (below 1.1800) is likely to be tested, and its break could take the pair away. EUR / USD to 1.1500 or even lower, ”the bank’s representatives said. “However, we are in no hurry to announce the“ bearish ”potential of the main currency pair, when the strengthening of the dollar is caused by the statements of the FRS, and the prospects for fiscal stimulus in the United States are becoming increasingly unclear. A strengthening of the USD on fear of declining dollar liquidity would quickly become so dangerous that it could not last long unless the Fed made a radical regulatory error. So for now, we are watching the cut line and the reversal low of early March at 1.1704 for the EUR / USD pair, ”they added. – Source: InstaForex

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