Now everyone is interested in the question of how low the euro, the Australian dollar, and the pound can fall. Last week these three currencies plummeted wherein even having updated multi-month lows. The dollar remained stable or was trading positively in relation to all major currencies against the background of high demand for the US currency.
Despite the recovery of stock markets, it will be difficult to convince anyone of the strong growth prospects after an escalation trade war that we wrote before in this article. Investors all the reasons to be nervous and central banks will probably soon express their concern. The trade war harms both the US and the rest of the world but there is no doubt that the US is more easily holding a blow, which explains the demand for the dollar and stocks even against the backdrop of rising trade tensions.
The man reason for the weakness of the currencies of the Eurozone, UK, Australia, and New Zealand is the prospect of slowing their economic growth. Last month central banks focused on trade uncertainty and after the new tariffs from the US and China prospects only worsened. On Friday China questions the sincerity of the United States. Beijing sees no point in Mnuchin’s arrival for negotiations since “the United States does not show any sincerity. Instead, they increase the pressure. On the one hand, the United States declares that they are negotiating, and on the other hand they continue to use various tricks to destroy the atmosphere of negotiations”.
Fresh economic releases leave the Reserve Bank of Australia no choice but to lower interest rates next month and hold another easing round in the fall. Inflation expectations are falling, unemployment is rising and the economy is losing full-time jobs. The markets estimate the likelihood of a rate cut at the June meeting at just 69% so far, but according to our estimates, the odds are approaching 90-95%. At the last meeting, the RBA could not identify any positive points about the economy and the only reason for deciding to keep rates unchanged was to wait for Trump’s decision. Trade tariffs, the threat of increased duties, and the failure of trade negotiations are the worth-case scenarios for China and Australia. The upcoming publication of the minutes of the RBA meeting is more likely to hurt than help the currency. The pair AUD/USD finished the week at 4-month lows and we believe that it can test at least 2019 near 0.6750.
Unlike other currencies, the euro has not reached any significant levels this week. The demand for the single currency clearly declined as the EUR/USD pair was falling all five days in a row. Data on the Eurozone cannot be called strong but the fall of the currency is largely due to the possible impact of a slowdown in global growth. For the most part of the year, the ECB only warned about these very risks and if relations between the US and China do not improve over the next weeks the upcoming regulator meeting will be bleak. Fears have increased so much that investors have completely ignored President Trump’s decision to postpone the introduction of car tariffs for 6 months. This temporary postponement implies a long period of tense negotiations with Japan and the Eurozone. This week Eurozone business activity indicators and the IFO report on Germany will be published. If the data is weak the EUR/USD pair may decline to 1.10.
The pound was the main outsider of the foreign exchange market. It lost more than 2% against the US dollar, the Japanese yen, and the Swiss franc. In addition to labor market data (which was weak but not terrible), no important country statistics were published. The number of applications for unemployment rate fell, but the growth of the average weekly wage (including premiums) slowed sharply. For the pound the main problem is Brexit. There is no progress and Prime Minister May plans to put his draft deal back to vote. The pound remains under pressure as the lack of progress increases the risks of a “hard” Brexit. This week there will be data on inflation and retail sales. Costs may increase but inflationary pressure must be contained. The mark of 1.2700 is an important support level for GBP/USD but the pair cannot fall below 1.26.
According to the situation on the market, there is a high possibility for Forex traders to gain high profit as well as to go to deep drawdown because every move or word from both sides of the “war” could influence the market. But there always the option to use automated trading systems which is the best way to secure your trading. On ForexStore everyone can find the best Forex robots for any kind of trading style or strategy.