Open EUR/USD positions, based on the U.S. GDP report

When the ECB hawks are getting extinct due to the euro-area weak economic data, and Robert Lighthizer, the US Trade Representative, announces that the deal hasn’t been stricken, they have just reached a compromise on all important issues, the EUR/USD bulls see that it is too early to say that the pair will exit the consolidation range of 1.125-1.15. Especially since, according to 65% of 90 Reuters experts, global stocks are more likely to drop in late 2019 than the rally to continue. It means that the demand for safe-haven assets, including the greenback, may resume.

While the euro-area consumer confidence continues going down, the president of the Bundesbank Jens Weidmann notes that a decline in German growth, occurred in 2018, may continue in 2019, and the markets reasonably respond to the weak economic data and delay the ECB interest rate hiking until 2020. Another hawk of the Governing Council, the governor of the Dutch central bank Klaas Knot has said The European Central Bank should pause plans to tighten its monetary policy. It seems that the euro-area hawks are to be registered in the Red Book Data, so the EUR/USD will hardly be rising fast.

Dynamics of euro-area economic sentiment


Source: Bloomberg.

Markets are recovering from the euphoria about the settlement of the US-China trade conflict. Just on February 22, the U.S. Treasury Secretary Steven Mnuchin pleased investors by stating that the U.S. and China made one of the biggest agreements on the currency ever existed. But now, Robert Lighthizer says that there is no agreement yet. Even if Beijing is willing to provide the stable yuan, but a particular mechanism to implement it is being worked on by both parties. In general, the current talks strongly differ from the previous ones. The U.S. is now demanding some evidence and is not willing to believe in promises, as it used to be with George Bush and Barack Obama.

In addition to the uncertainty about the outcomes of the US-China trade talks, which back to the market, China’s PMI continues declining in February. It can well be affected by the Chinese New Year, but the very fact of a continuous drop in China's PMI doesn’t suggest anything positive for global economy.

Dynamics of Chinese PMI growth

Source: Bloomberg

Especially since, despite all Donald Trump’s efforts, the U.S. foreign trade deficit in 2018 expanded by 10%, up to $79.5 billion. That is why Pantheon Macroeconomics and Macroeconomic Advisers revise the forecasts for the US GDP growth in Q4 down to 1.9% and 2.1% correspondingly. The report on the US GDP changes in Q4, 2018, will be the highlight of the week, ending March 1. Bloomberg median-forecast suggests that the US economy should expand by 2.3% Q-o-Q in the October-December period. If the actual data are worse, the EUR/USD will be encouraged to go ahead.

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Price chart of EURUSD in real time mode

Euro lists hawks in the Red Book

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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