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The trade war between Washington and Beijing continues to gain momentum, and investors are seriously concerned about the prospects for the global economy.
There are concerns that China may limit or even reduce exports to the United States of rare earth materials, which are essential components and are used for the production of almost all high-tech products.
If the Celestial Empire will play this card, then the American stock market will fall by 2-3%, pulling the major currencies. In this case, "aussies" and "kiwis" will suffer the most, while USD/JPY may fall to 108.
Morgan Stanley believes that the subsequent development of the US and Celestial trade war may trigger a slowdown in GDP growth in both countries, which markets will not be able to ignore.
"If the parties do not agree in the next three to four months, then the growth rate of the global economy will slow down by 1%, and the Fed will be forced to start lowering rates," Morgan Stanley noted.
It is assumed that the easing of the Fed's policy will put pressure on the US currency.
The dollar index continues to trade near two-year highs.
Strategists of the Swiss Bank Julius Baer believe that the upward trend of the USD is coming to an end.
Bank experts see the potential for a reversal of the dollar, but advise investors to carefully choose against which currency to open a short position.
"The United States in terms of GDP dynamics are beginning to lose advantage over other countries and the growth of the world economy as a whole. However, the changes are heterogeneous, and we believe that the cyclical currencies, namely the Canadian dollar, the Brazilian real, the Norwegian and the Swedish krona, will benefit most in the second half of this year," said by the representatives of Julius Baer.
"We also see chances for a decline in the US dollar against the pound sterling, given the discount that is included in the latter due to the risks associated with Brexit. However, those who hope to improve the dynamics of EUR/USD are likely to be disappointed: the euro is not so cyclical, interest rates in the eurozone remain negative, while the economic situation in the region looks far from bright, and the prospects in the light of the trade war between Washington and Beijing are vague. Also, we do not expect a deterioration in the dynamics of the dollar against "aussie" and "kiwi"," they added.
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