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The USD index correction started in mid-December continues to gain momentum. Investors closed long positions on the US dollar due to the increased likelihood of a slowdown in the US economy, a pause in the process of normalizing the Fed's monetary policy and increasing political risks. The disconnection of the government turned out to be the longest in the entire history. According to experts of the Financial Times, it will deduct 0.1 pp from GDP every two weeks. Donald Trump does not give up and is going to declare a state of emergency in the country, which does not contribute to the growth of interest in assets issued in the United States.

According to the consensus forecast of the Wall Street Journal economists, the US economy in 2019 will slow down from 3% to 2.2% and chances of a recession have risen to 25%, which was the highest level since 2011. Experts do not count more than one increase in the federal funds rate in the current year, which is generally consistent with FOMC estimates. The derivative market estimates the probability of a single act of monetary restriction at 17% but even at the September meeting, the Fed was ready to tighten monetary policy three times. However, the fall in stock indices and the yield of treasury bonds forced her to doubt the correctness of the decisions made.

Dynamics of the likelihood of a recession in the US economy

Exchange Rates 11.01.2019 analysis

The Central Bank did not disregard the testimony of financial markets. Along with concerns about the slowdown of the global economy and the leisurely pace of inflation, these were used as the main argument in favor of a pause in the normalization process. Jerome Powell and other FOMC representatives are increasingly talking about patience. Even yesterday's "hawks" in the face of Eric Rosengren and Charles Evans argue that the best tactic is "sit and see." Macroeconomic statistics for the United States returns to be the center of attention but turning off the government creates serious difficulties for the Fed in understanding the way the US economy is moving.

The dollar is not easy but the euro is not yet able to take advantage of the weakness of its main competitor. The weak data on French and German industrial production, the reluctance of core inflation in the eurozone to go far from the 1% mark, and the phrases about the growing downside risks in GDP for the common currency in the minutes of the December meeting of the Governing Council. If the European Central Bank does not normalize it, EUR / USD is unlikely to break above 1.18, even against the backdrop of such a weak US dollar as it is now.

USD Dynamics index

Exchange Rates 11.01.2019 analysis

The euro may be challenged by a vote in the British parliament on Brexit scheduled for January 14. Rejecting Theresa May's plan, lawmakers will lend a helping hand to pound sellers. At the same time, the synchronous dynamics of EUR / USD and GBP / USD strengthens the risks of returning the euro to the boundaries of the previous consolidation range of 1.1265-1.1485. On the contrary, if the "bulls" succeed in keeping the quotes above the base of the 15th figure, the probability of continuing the rally to the target by 88.6% according to the "Shark" pattern will increase.

EUR / USD daily chart

Exchange Rates 11.01.2019 analysis

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Marek Petkovich,
Analytical expert
InstaForex Group © 2007-2019
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