03.06.201911:45 Forex Analysis & Reviews: USA and China: Competition on who blinks first (EURUSD pair - trading in the range, high probability of local recovery of the USDJPY pair)

At the end of last week, the US dollar rose against major currencies but the market is experiencing a clear slowdown in its growth rate, which is due to two reasons. One of which is playing all the factors related to the weakness of the main competing currencies, meaning, there are no prospects for higher interest rates by central banks to which they relate. Another is a decline in the growth of the American economy in the future, which may force the Fed to start lowering interest rates.

In our opinion, another important reason for the likely local reversal of the exchange rate of the US currency may be an even greater escalation of the trade crisis between China and America. The last May events showed that Washington is increasing pressure on the "heaven" from different directions in order to achieve trade preferences. But as it becomes clear, Beijing is not going to yield to Washington on issues of principle in trade. Moreover, according to the content of the White Paper published this Sunday, it will fight for its interests to the end. The fact that markets fear an escalation of the conflict is already manifested in the precipitous drop in oil prices, which came under a double blow. They are under pressure from the growth of oil production in the States and the fear of falling demand in the world due to the prospects for slowing down the growth of the world economy.

All of these indicate that the trade war between the two world economic leaders will negatively affect the growth of the world economy, which ultimately will have a negative impact not only on China but also on the United States. Ultimately, a recession will begin in the United States in the wake of a sharp rise in inflation as a result of rising domestic import prices due to increased customs duties. In these conditions of economic uncertainty and political tensions, this could lead the Fed to a stupor.

The general monetary view on inflation growth stimulates the increase in the cost of borrowing by the Central Bank to reduce inflationary pressure. At the same time, a decline in economic activity in the wake of a slowdown in economic growth will call on the Fed to lower rates to stimulate it, which will clinch with the need to raise rates due to rising inflationary pressure.

It is likely that it is this scenario that makes the Fed pause in the certainty of its actions in monetary policy at the moment.

So far, the markets believe that the growth of the American economy is acceptable. With inflation below the target level of 2.0%, the regulator will most likely decide to lower interest rates this year, which by and large is the main cause of the slowdown or more precisely, the uncertain growth of the US currency.

Important data will be published from the United States this week, including figures on employment and the speech of Fed Chairman Jerome Powell. This can lead to noticeable movements in the markets.

Forecast of the day:

The EUR/USD pair is trading in the middle of the range in anticipation of the publication of important economic statistics from the United States, as well as the outcome of the ECB monetary policy meeting. The pair can locally recover to 1.1215 if it is kept above the level of 1.1160, or fall to 1.1125 if it drops below this mark.

The USDJPY pair found support at 108.10. It can roll to 109.