Donald Trump comments encourage investors to open EUR/USD shorts on its rise

The markets got used to Donald Trump’s comments and are not sensitive the last spell of the U.S. president’s criticism of the Fed. The U.S. president is confident that, if he attributes the successes and failures of the U.S. economy to his account, the rest do the same. According to Donald Trump, Jerome Powell really enjoys hiking the federal funds rate. These measures threaten the US GDP growth, and, though it is too early to discuss it, the U.S. president may not be satisfied with his choice of the Fed’s chairman. It would be good to remember that the central bank is not a one-man show; and the other FOMC member also agree that it is necessary to raise the rate up to the neutral level. Anyway, if a man uses the phrases like “my figures” and “I have hot economy”, it is hard for him to understand that the decisions are sometimes taken collectively.

The U.S. dollar has quite quickly recovered after the drawdown, resulted from Donald Trump’s criticism; though, it must be admitted that the political clouds are gathering over his head. Republicans accepted the idea, randomly expressed by the U.S. president, about 10% tax reduction for the middle class and have stated that they are working on the draft bill. A good advantage ahead the elections; however, according to TD Securities, there is going to be a split in the Congress. Democrats will celebrate the victory in the House of Representatives and Republicans will maintain the control over the Senate.

If it happens so, the uncertainty will increase, putting pressure on the U.S. stocks. So far, they have been ahead their foreign peers; however, a narrower spread may result in growing interest in the convergence of the central banks’ monetary policies. The Fed will be not the only one, restricting its monetary policy, and so EUR/USD will grow and USD/JPY should go down. Therefore, the greenback’s middle-term outlook is moderate-pessimistic, though there could hardly be a real rival on the short-term scope. The ECB, at its meeting in October, is likely to confirm the information about quitting the quantitative easing program; however, the policy of reinvesting of the funds, raised from the retired bonds, suggests that the central bank will continue buying bonds worth €117 in 2019. Its balance sheet, unlike that of the Fed, is not going to be reduced, supporting the EURUSD bears’ positions.

Dynamics of ECB balance sheet

Source: Bloomberg

The tense situation in Italy presses the euro down, allowing investors to sell the major currency pair on its rise. Even if the Prime Minister of Italy, Giuseppe Conte, claimed the euro to be the currency of hos children and grandchildren, he still insists that Rome hasn’t got any alternative plans and is willing to justify its budget with the deficit of 2.4% of GDP before the EU. The European commission has rejected Italian draft budget, saying it brazenly broke EU rules on public spending, and asked Rome to submit a new one within three weeks or face disciplinary action. The EURUSD is again close to the critical zone of 1.143-1.145. In case it is broken out, the euro may drop rather deep.

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Price chart of EURUSD in real time mode

Dollar is Entertained by the President

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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