23.05.201901:13 Forex Analysis & Reviews: Euro: a new argument for selling

As a rule, the dollar index increases if the US economy's growth accelerates, and the world economy slows down. The OECD lowered its estimate of global GDP in the current year to 3.2% from 3.3% previously and increased similar expectations across the US to 2.8% from 2.6%. This was another argument in favor of selling the EUR/USD pair.

On Wednesday, the main pair traded at about the same levels as two days ago. On Tuesday, Brexit's topic provoked a jump in the volatility of European currencies, but later both the euro and the pound lost their points. The downward trend prevails, the euro is also under pressure from the upcoming elections to the European Parliament.

Trade wars put pressure on the painful points of the world economy, and the US-China conflict turned out to be painful for it. If America introduces tariffs on all imports from China, this will subtract 0.6 pp from US GDP, and 0.8 pp from China for two years, the OECD estimated.

However, the US stock indexes are trying to recover, despite the serious consequences of trade wars. Most market participants believe that Washington and Beijing will eventually come to a compromise. Most likely, this will not happen in June at the G20 summit in Japan, and later. However, the very fact of belief in resolving a trade conflict feeds risky assets.

The topic of trade wars will be long-running, and this is a fact that is beyond doubt. The concerns of the FOMC representatives in this direction are absolutely justified. As noted by the head of the Federal Reserve Bank of St. Louis, James Bullard, weak inflation and the resumption of trade tensions are important arguments in favor of lowering the rate. He admitted that the Fed overdid it, tightening monetary policy in December.

From the minutes of the Fed's May meeting, traders hope to receive a signal on future changes in interest rates. Few people expect to see "dovish" notes in the document. If there are any, the euro can go on a counterattack. A prerequisite for such a movement is a breakthrough of $1.119. If the main pair leaves the lower limit of the consolidation range of $1.1135-1.1265, it will open the way to the level of $1.1.

Do not forget about the extremely unstable situation with Brexit, which continues to make itself felt. The British prime minister is under increasing pressure to withdraw from the deal and resign.