18.03.201913:18 Forex Analysis & Reviews: Dollar falls on investor optimism

Last week, the US dollar fell against all major currencies with the exception of the Japanese yen. Positive factors were the reports from both sides of Chinese and American with ongoing trade negotiation process and an optimistic outcome is expected, as well as the decision of the British parliament to postpone the country's withdrawal from the EU with the so-called Brexit, until May of this year.

Although the US dollar declined, it still remains sideways with respect to major currencies. Thus, it demonstrates a state of equilibrium which is supported not only by the weakness of the dollar because of the expectation if not the complete curtailment of the process in increasing the interest rates of the Fed, then at least a high probability that the regulator will pause. Moreover, it will generally stop reducing its balance in the fall of this year but also the lack of strength in the currencies opposing it. The ECB already declared about the renewal of the program of the support of TLTRO banks, which again softens further the monetary policy. Other central banks, whose currencies relate to "majors", will not change as they try to make the exchange values of its currencies more "weak" with respect to the dollar in order not to lose in the global trade competition. This is why, we consider what is common on the lateral dynamics in the currency markets over the short-term and long-term, which will be continued.

A meeting of the Federal Reserve will take place this week and as expected, the bank will confirm that it will not raise rates as reported earlier to the markets. This will be a negative for the dollar but it is unlikely to continue its noticeable fall since the lack of willingness of the Fed to raise rates in the near foreseeable future is generally taken into account in prices in the markets.

In addition to waiting for an agreement on trade between Washington and Beijing, which supports the demand for risky assets, another reason is the economic policy of the Chinese monetary authorities, who decided on incentive measures, which resulted in the current rally in the local stock market. On this wave, the Shanghai Comp has been growing almost vertically for the second month in a row, which gives confidence to other stock markets, as well as to the overall demand for risky assets and currencies of EM countries.

Forecast of the day:

The EUR/USD pair is trading below 1.1335. We believe that it will continue to move in the range of 1.1300-1.1335 in the wake of investors' expectations of the outcome of the Fed meeting on monetary policy to be held this week. However, if it overcomes the level of 1.3335, the pair can grow to 1.3350 on the general wave of demand for risky assets.

The USD/JPY pair is in a short-term uptrend in the wake of declining demand for safe-haven assets. If the price holds above the level of 111.40 and overcomes the level of 111.70, it can rise to 112.00.