The price of the pair EUR/USD reached the highs since May 2016 against a significant decline in the USD. The increase in political risks and the attack of the FOMC "pigeons" has became grim factors leading to the drastic decline in the USD index before Janet Yellen's speech in the Congress. The letters of Donald Trump's son, which has had references to Russian support in his father's election company, made investors shift their interest to the safe- haven currencies, thus knocking the bottom out of the US Treasury bonds and causing decline in the USD.


There are talks in the Forex market that the story about interference of Moscow on the US presidential election undermines investor confidence in Donald Trump, but let's face up to the real things. The USD index has dropped to the lows in autumn 2016. What disruption of confidence is being meant? The confidence has been undermined long time ago. It all looks like ostracise, especially because the shocking news has emerged after the meeting between representatives of Russia and the United States. Someone is obviously weaving intrigues, so the political factor is not worth considering in the long-term.


Investors, who buy the EUR/USD should not stake on the attack of FOMC “pigeons". Keep in mind that Lael Brainard has asked to be cautious, saying that the Fed does not need to raise rates in order to maintain the current rise in the US economy. Patrick Harker believes that it would be nice to sit back and watch the reaction of the market and the economy to the cut in balance, and only after that think about raising the rate on the federal funds. Neil Kashkari said that he voted against monetary policy tightening because he first wants to see the rise in the average wages.


Dynamics of wages in the USA

The USD started witch war

Source: Bloomberg.


No wonder that under all these circumstances possibility of the monetary tightening in September fell to 13% against 40% in May. However, we should not forget that Brainard and Kashkari are the "pigeons" in FOMC, so their comments could not boost the rise in the pair EUR/USD. Especially, before Janet Yellen speech in the Congress. Note that this speech may become the last one. Reuters, citing some people familiar with the topic, said that it is unlikely that Trump will extend her term, giving preference to Gary Cohen. Markets are expecting changes, although changes as a rule cause uncertainty, which, in its turn, increases demand for the safe-haven assets.


Given all the facts we can expect the decline in the yield of the US treasury bonds.


US financial conditions dynamics

The USD started witch war

Source: Bloomberg.


It seems that the Euro has gone too high, and if the bulls fail to maintain the price above support level of $ 1.1425, the surge of sale will be possible. A lot will depend on the speech by Yellen before the Congress. Considering a chance that she might leave it will be wise to listen to her speech very attentively.

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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