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It seems that the US President is really on the mend since he began to manipulate the markets. What does he achieve by canceling negotiations with Democrats over an aid package for the country's economy?
Trump's decision on Tuesday caused US markets to crash and strengthened the US dollar as a defensive asset. However, the markets reversed its course on Wednesday. What is the reason for this? Perhaps US President Donald Trump, who is still battling the virus, only wanted to momentarily remind the markets who is the boss. In order to put things back in their place, Trump made new comments, calling for support for airlines and the prolongation of the worker protection program. Risk appetite was restored, forcing the defensive dollar to move back.
The markets also helped Trump, as they reacted to speculation that the negotiations with the Democrats were not canceled at all, but only suspended. After the presidential election on November 3, the economy will receive incentives, and the figure will be much pleasant than the one proposed by lawmakers now.
By and large, Trump wants not only to attract attention but also to increase his rating, as well as the chances of re-election, by canceling negotiations or suspending, as he pleases. So far, he lags behind his main competitor Joe Biden by 16 percentage points.
The incumbent president is reckless and can now use his position to strengthen his position. There were suggestions that he should personally sign the stimulus packages and give generous support to the economy and affected industries. And after his re-election, it will be even better, and the figure will be higher.
It is possible that Trump will be able to turn everything around, but it is also important to understand that not everything in this venture will go according to plan, as in the situation with China. The net result may ultimately be negative for the markets for a long time. In this case, it will be necessary to look for new ways to compensate for the negative through softer monetary policy or broader fiscal incentives.
The US markets are getting closer to the point where the entire system will be tested. Due to the stimulus package, the government is overgrown with huge debts. Interest rates are already at the minimum and require the Fed to build up the balance sheet for the subsequent easing of monetary policy.
The limits of monetary and fiscal policy cannot be measured with any specific figure. Here we can say this: the higher the debt burden, the less effect will be from its further increase, and the lower the rate, the fewer benefits from further reduction. That is the answer to the question of why America needs trillions of dollars in checks and purchases on the balance sheet of the Central Bank. Each subsequent failure requires more support.
Meanwhile, euro bulls are currently holding the initiative. However, sales on the EUR / USD pair may increase. Now we need to watch the dynamics of the markets with caution. The levels of 1.1800 and 1.1700 are used as signal marks. A breakout of one of the directions will indicate the further path of the euro rate - up or down.
As for the dollar index, there was a reversal in the trend structure. Now we can state the fact of an upward trend. The plans for the dollar are now being reconstructed, the interest in buying is increasing. The next event that can change the trend or strengthen the existing one is the publication of the minutes of the last meeting of the US Federal Reserve or another "surprise" from Trump. The elections are getting closer.
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