The risks of interventions restrain the advance of the EUR/USD bears

More than a 6% rally of the USD index did not change the worldview of Reuters experts. According to a median estimate of 60 specialists, the dollar will weaken against the major world currencies on the timeframes of 6 and 12 months. Of the 52 respondents, 29 said they were not sure of the continuation of its upward movement within six months. The number of bears on the annual interval increased to 37 out of 52. Judging by the results of the August poll, the medium- and long-term prospects for the greenback are drawn in gray tones. What can move the boulder it is today?

According to Morgan Stanley, the answers should be sought in the interventions of the US administration. Donald Trump and his team already hinted at the attractiveness of the weak dollar and accused China and the EU of currency manipulation. Their rhetoric might get hotter a notch. Moreover, large-scale sales of greenbacks can be used. The US, together with other representatives of the G-7, intervened in the life of the Forex in the 2000s, seeking to revive the weakening euro, as well as in 2011. Then there was the need to stop the yen sharply strengthening against the backdrop of natural disasters in Japan.

If there is such a need today? The positive balance of China's foreign trade with the States in July fell slightly from a record $ 28.97 billion to $ 28.09 billion. The reason was a sharp increase in imports from the US (27.3%) due to concerns about new tariffs. There have been no major changes yet, and there are rumors on the market that the trade war has not really begun yet. Beijing responded to Washington by $ 16 billion expansion of import duties on similar 333 goods. Opponents threaten each other with new acts of protectionism for $ 200 billion and $ 60 billion, while Donald Trump likes the figure of $ 500 billion.

Trade war in figures

Source: Bloomberg. 

The risks of the increasing scale of the trade conflict between the US and China increase the demand for reliable assets, which plays into the hands of the US Treasury. At the last auction, it sold debt with a maturity of 10 years at $ 26 billion. The ratio of supply and demand was 2.55. The indicator is close to the average value of 2.53 for this class of assets. Nevertheless, the market, as before, puzzles over the question, when, at last, investors will begin to move money into short-term securities. The rates for 3-month treasury bills rose from 1% to 2% during the year. Two years ago, the indicator was 0.3%.

Dynamics of profitability of US debt obligations

Source: Bloomberg. 

Decrease in demand for long-term treasury bonds will become a serious problem for the United States, which badly needs financing of the budget deficit expanding under the influence of tax reform. And if China also starts selling off its treasury stocks, then the situation risks becoming critical. However, in a trade war, everything goes, doesn't it?

EUR/USD continues to consolidate, waiting for the release of data on US inflation. Only a breakthrough of resistance at 1.175-1.176 will open the way for the bulls to the north. The bears are betting on a successful assault on support at 1.153.


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Price chart of EURUSD in real time mode

Dollar: what can move the boulder?

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