12.12.201909:12 Forex Analysis & Reviews: ECB's decision not to implement broad stimulus measures will support the euro (we buy or sell EUR/USD pair after the ECB meeting, while we also buy or sell GBP/USD after the election in Britain)

The outcome of the Fed meeting for financial markets was the expected preservation of interest rates in the range of 1.50% -1.75%. The regulator also signaled that rates would remain unchanged throughout 2020.

Thus, why did the market react to this decision of the American regulator by depreciating the dollar? After all, the rates remained unchanged, and the general assessment of the situation in the economy of America was noted by the head of the Federal Reserve J. Powell as positive.

In our opinion, there are two reasons for this. The first and foremost is the risk of the impossibility of concluding a new trade agreement between the United States and China, which will cause a rise in customs duties from China and the United States. This will hit not only the economies of these two countries, but also the ability of the world economy to grow. Earlier, the decision of D. Trump set the date for the increase in America's new customs duties in relation to China. This is on December 15th. If, as investors believe, an agreement will not be concluded by this date or a decision will not be made by the parties to the conflict until the duties are raised, this will lead to a collapse in the markets, which, in turn, will force the Fed to actively pump up the financial system with liquidity and, possibly, even cut interest rates by at least 0.25%. As long as markets think in these categories,

At the same time, there is another reason for yesterday's decline in the dollar against a basket of major currencies. This is the strengthening of the euro before the meeting of the ECB on monetary policy today.

It is believed in the market that the European regulator, led by its new head, C. Lagarde, will not dare to implement broad stimulus measures which was previously announced under M. Draghi, which, of course, will serve as the basis for strengthening the single currency. And since the euro in a basket of major currencies traded against the dollar has significant weight, the ICE dollar index may continue to fall. Due to this, the weakening of the dollar against the euro will pull and its decline in relation to other major currencies, which, in turn, will stimulate a rise in prices of commodity assets and gold.

However, such a weakening can only be observed if moderately positive sentiment is maintained in the markets. As soon as the situation worsens noticeably and the world economy falls into a new wave of recession, markets will think of the dollar as a currency of refuge again and thus, it will receive a noticeable stimulus again for growth with other assets and currency of refuge.

Forecast of the day:

Today, EUR/USD pair can both grow and fall as a result of the ECB meeting. If the bank refuses to implement broad stimulus measures, the pair, breaking through the level of 1.1145, will rush to 1.1175 with the prospect of growth to 1.1230. At the same time, the decision to carry out these measures will exert pressure on the pair, and it may decline to 1.1050 with the possibility of further decline to 1.0990.

Meanwhile, GBP/USD is a hostage to the vote in the British Parliament. If B. Johnson's party wins, the pair may turn around and decline to 1.3100. At the same time, the victory of his opponents will lead to further growth of the pair to 1.3375 after overcoming the level of 1.3235.