EURUSD bears stormed the psychologically important level 1.15
If you look at the US stock markets, global economy may seem to be strong and sound. Corporate reporting is impressive even despite the strong dollar. Wall Street Journal experts raise their forecasts for the US GDP growth in 2018 from 2.9% up to 3%, S&P 500 suggests January's highs. It’s all right, fair Marquise? Nope! Look at the emerging markets and you’ll see that the carpet has been set on fire by the fallen candle. The contrast in development is obvious, and it encouraged EURUSD bears to break through the important supports at 1.1535 and 1.151, laying the way down.
If in early 2018, the markets were vigorously discussing a close end of the US economic cycle, giving the reasons to expect the EURUSD uptrend to restore soon, now there are rather few supporters of this idea. What end can be spoken about if non-farm payrolls are increasing faster than last year, and the experts, interviewed by Wall Street Journal, believe the U.S. unemployment rate to be down to 3.6% in late 2019, the lowest level for the last five decades! 88% of the popular journal’s respondents are confident in four federal funds rate hikes in 2018. It is much higher than the chances suggested by the derivative market (67%).
Experts’ projections for the federal funds rate
Source: Wall Street Journal
What the rivals can respond to dollar with? The ECB is not going to increase the interest rate before autumn, 2019 and goes on expressing concerns about trade wars. According to the latest central bank’s research, if the suggested tariffs come into effect, the average tariff rate in the USA will be at the highest level for the past five decades. Besides, according to 61% Wall Street Journal respondents, the tariffs will increase in the next 12 months. Trade war is just starting and the economies of the Euro-area and China have already slowed down substantially. Here is another contrast: if in 2017, the European GDP was expanding at the fastest pace for the decade and was ahead the US GDP growth rate, then in 2018, the growth gap between the US economy and the euro-area countries has been the widest since 2014.
So, it is not surprising that the greenback is followed up by the US stock indexes in sync. The stocks issuers, driving about 40% from abroad, included into S&P 500, should have drawn down due to the revaluation. In fact, things turned out differently. The domestic demand, supported by the fiscal stimulus, removed all the negative from the strong dollar and higher borrowing costs. The US stock indexes are going up, and the contrast with their counterparts from other regions lures investors back to the New World. Money flows into the USA, driving the USD index up.
With this regard, the breakout of the middle-term trading range of 1.15-1.2 looks logic. The former support turns into the resistance. Until EURUSD bulls have enough power to storm it, their opponents will be controlling the EURUSD trend.
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Price chart of EURUSD in real time mode
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