05.03.201901:40 Forex Analysis & Reviews: What to buy, if not the dollar?

Donald Trump resumed criticism of Jerome Powell, calling him a gentleman who likes to raise rates, and attacks on the strong dollar. In general, Trump is not against a strong national currency, but not so much as it would harm American business.

"Can you imagine if we left interest rates where they were where would the dollar be now! And why raise them, if inflation practically does not grow," the White House protested.

Served on a silver platter, the markets were swallowed whole. This is not the first time this has happened, but perhaps the situation is quite different now. If you think about it, then in the March portion of Trump's criticism you can find a logical explanation. In addition, concrete actions may be behind the new rage.

So, net exports last year deducted 0.2 pp from GDP, which did not allow the economy to grow by the 3% that was promised by the president. The foreign trade deficit increased by the end of 2018 to $914 billion from $859 billion, updating the record set in 2006 to $905 billion. During Trump's presidency, the figure widened by 16%. Of course, this is a disappointment for a person who tried to reduce it at the expense of import duties. Even if the main reason for the increase in the negative trade balance was the fiscal stimulus, which allowed to increase imports, but the Fed's tightening led to the breakthrough of the dollar and pulled the plug to U.S. exporters.

As for Donald Trump's statement regarding the lack of inflation, it can be called controversial. Despite the fact that last year the index of spending on personal consumption increased by 1.75%, the eighth consecutive year that it has not reached the goal of 2%, the base PCE in December accelerated growth by 0.19% on a monthly basis, and this is the best dynamics since May. In terms of annual rates, the rate rose at the highest rate in seven years (1.94%).

Trump's dissatisfaction with the Fed's work forced hedge funds to doubt the correctness of their decisions. Speculators are returning to the dollar after a large-scale sales in December-January, Citi reported after the analysis.

It may sound a bit ironic, but Trump's tweet and public post is not an empty phrase. Perhaps his statements should be taken as a hint at the future movement of the markets. For example, taking the office of president, he criticized a strong dollar, which after a while set a record low in price, the EURUSD pair gained more than 10%. His attacks on OPEC were one of the main reasons for the decline in oil prices last year. Then he attacked the Fed, after which the regulator changed its position. There is no doubt that the actions of the central bank's leadership were influenced by the December collapse of markets, but Trump also played a role in the pressure on Powell.

The president of the United States goes ahead in achieving his goals. Despite not being able to bring the GDP to the target of 3% and extremely high foreign trade deficit, we must admit that the economy did not have enough to reach the goal. In addition, protectionism forced the United States and China to sit down at the negotiating table, and the parties are now ready to conclude an agreement, one of the points of which is likely to be the reduction of tariffs on imports of US agricultural products.

But on the other hand - if you sell the dollar, then what to buy instead? There is no alternative. The growth of the European core inflation in February, which is even stronger than February, to 1% yoy increases the likelihood of the dovish rhetoric of the ECB head at the March meeting and creates downward pressure on the EURUSD rate. The bears have prepared for an attack, which will increase the risk of lowering quotes to the lower end of the consolidation range of 1.125.