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22.05.202009:33 Forex Analysis & Reviews: US-China confrontation overshadows the markets, but it is unlikely to be disastrous (a local decline in EUR/USD pair and growth in USD/CAD pair are expected)

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The Fed shows a clear signal that the US economy is expected to recover in the second half of this year. Recent statements by regulator's members clearly show this very important position for the markets.

The representatives of the Federal Reserve made it clear that they did not actually expect any second wave of the coronavirus pandemic, which WHO is constantly talking about. These very positive expectations indicate the content of their speeches. So, Fed Vice-Chairman, R. Clarida said that the unemployment rate in the second half of this year will decline. According to him, it will take "some time to better understand the trajectory of the economy" and that by autumn, "there will be a better state of the economy." He was actually echoed by the President of the Atlanta Federal Reserve Bank R. Bostic, who said that he was seeing a silent economic recovery. However, he clearly stated that he was not a supporter of negative interest rates.

But there are pessimists among the members of the Federal Reserve. So the president of the Federal Reserve Bank of New York D. Williams made it clear that before the unemployment rate drops, its local growth is possible. Whether it will happen or not, time will tell, but overall, the position of the American regulator indicates that he expects a more noticeable recovery in the country's economy in the second half of this year.

The financial markets as a whole did not pay much attention to the statements of the Central Bank of America representatives, concentrating all their attention on the situation of the confrontation between Washington and Beijing. Trump is clearly striving, if not to literally rob China, by claiming to conceal it at the early stages of the outbreak in the country, then use this topic as a mechanism for channeling criticism of his opponents in the election race, claiming that China is to blame, and he, supposedly nothing to do with it.

Assessing the prospects for the markets next week, we believe that the shift in investors' views from the topic of COVID-19 to the US-China confrontation will continue. However, it is unlikely to be a decisive factor. Most likely, the recovery of stock markets will continue, as well as crude oil prices. Regarding the dynamics of the currency market, it can be noted that the general side movement is likely to continue in currency pairs where the US dollar is present.

Forecast of the day:

The EUR/USD pair remains in the side range of 1.0770-1.1000. We expect that in the wake of the growing confrontation between the United States and China, the pair will decline to the lower boundary of this range of 1.0770.

The USD/CAD pair is trading upward amid a worsening relationship between Washington and Beijing. The pair still remains in the range of 1.3855-1.4125. We expect a local price increase to the level of 1.4125.

Exchange Rates 22.05.2020 analysis

Exchange Rates 22.05.2020 analysis

Pati Gani
Analytical expert of InstaForex
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