05.09.201809:55 Forex Analysis & Reviews: What do investors expect?

Recently, the world markets are in a state of extreme uncertainty which is clearly reflected in the dynamics of all segments in the global financial market without exception.

Trade wars, military conflicts and as an apogee, the US's convulsive desire to remain on the economic and political Olympus by any means, has plunged markets into a state of extreme uncertainty. The risks of slowing economic growth in China and, probably, also in the States in the near future frighten and portend big shocks. Against the backdrop of conflicts, the likelihood of breaking the growth of the world economy has grown significantly.

According to the latest data of economic statistics, the slowdown in production indicators is already observed in China, which is the second largest economy of the world. The business activity index in the manufacturing sector has been declining steadily since the end of spring, approaching the threshold level of 50 points, below which there is already a signal about negative dynamics.

The business activity index in the services sector (PMI) of China was published today, and it also showed a decrease to 51.5 points from 52.8 points with a downgrade forecast of 61.7 points. It seems that the measures taken by the Chinese government in summer aimed at supporting the local economy are not yet manifest.

At the same time, US indices still show strength which indicates that fiscal stimulus and probably the repatriation of capital to the country, primarily from emerging markets, are working. At the same time, the trade wars unleashed by America does not have a negative impact on its economy. The data of the business activity index in the manufacturing sector (PMI) from ISM was published on Tuesday, showing an increase of 61.3 points from 58.1 points, while it was expected to decrease to 57.6 points.

But will this situation change in the future? We believe that the absence of normal trade relations in the world will negatively affect the US economy, which is supported mainly by the monstrous public debt, which is growing at an incredible pace. But while in the short term the sky remains cloudless. Fears and all kinds of investor apprehensions are realized in purchases of US Treasury bonds and local deals in shares. But in fact, it seems to us that the beneficiary of this state of affairs will be the US dollar, which gets support on the back of expectations of an interest rate hike by the Fed, its function as a safe haven and currency, which is bought in order to purchase US government bonds, as well as shares of American companies.

Well, what are investors waiting for? In fact, they expect the continued pressure of the dollar on the currency markets.

Forecast of the day:

The EUR/USD pair is trading above the 1.1580 level on the wave of hopes that today's negotiations between the US and Canada will be successful. We can assume that if the news is positive and the economic data from the euro will show growth, then the pair can overcome the 1.1620 mark, and may rush to 1.1665. At the same time, negative news and statistical data may put pressure on it again and it will fall to 1.1530, falling below the level of 1.1580.

The USD/CAD pair is trading above the 1.3165 level. Positive news from the talks between the US and Canada, as well as a signal about a possible increase in CBA rates by the end of this year, will push the pair down to 1.3100 after overcoming the 1.3165 level. Another scenario may lead to the continuation of its local growth to 1.3275.

* The presented market analysis is informative and does not constitute a guide to the transaction.