15.11.201911:58 Forex Analysis & Reviews: EUR/USD: the dollar makes a bet on the passivity of the Fed and trade disputes

As the US economy is still strong and its main competitors are in trouble, the greenback is confident. In addition, the uncertainty regarding the conclusion of a trade agreement between the United States and the Middle Kingdom remains.

In his second speech to Congress, Fed Chairman Jerome Powell noted that the US economy is in good shape and has promised to do everything possible to ensure that economic expansion continues as long as possible.

At the same time, the October releases on Chinese investment, retail sales, and industrial production were worse than expected. Japanese GDP slowed sharply in the third quarter, and Germany barely escaped a recession. Employment in Australia last month was marked by a maximum decline in three years.

At the same time, J. Powell provided some support to the bulls on EUR/USD. He pointed out many factors, including inflation and trade conflicts. By taking them into account, the Fed may lower the interest rate. At the same time, J. Powell did not name a single factor, because of which the US Central Bank can tighten monetary policy.

The derivatives market lays in the quotes a 53% probability that the rate on federal funds will remain unchanged until mid-2020. That is, investors believe that for eight months the Fed will sit on the sidelines, which in principle is confirmed by the latest comments from FOMC representatives. So, the head of the Federal Reserve Bank of St. Louis, James Bullard, said that further interest rate cuts are not required. The President of the Federal Reserve Bank of New York, John Williams, believes that monetary policy is in the right place so that the US Central Bank can withstand the uncertainty in the world.

According to Fed Chairman J. Powell, despite the fact that the amount of introduced trade tariffs is negligible compared to national GDP, the uncertainty associated with them has a negative impact on business activity and business investment in the United States, that is, it contributes to a slowdown in the US economy. Therefore, the Fed will act on the incoming data.

The market is expecting how the trade war between the USA and the Middle Kingdom will be resolved. On the eve of the White House chief economic adviser, Larry Kudlow said that the trade negotiations of the parties have entered the final stage, the deal is close, although not yet implemented. Meanwhile, the Financial Times, citing informed sources, reports that Washington is unhappy that Beijing is taking time and does not offer significant concessions in response to the rollback of tariffs.

Thanks to the German GDP and J. Powell, the EUR/USD "bulls" managed to repel the first attack at 1.1000, but their positions are still fragile.

"Even if the US and China reach an interim agreement, it is unlikely that key points in trade disputes will be resolved. Tensions will remain high, and the global economy will continue to slow down over the next two quarters. The Fed is close to completing a cycle of easing monetary policy, while the ECB will continue to weaken it. Against this background, the dollar will continue to strengthen," Jonas Holtermann of Capital Economics said.