EUR / USD price forecast: two huge economies on the edge of the recession?

January 7, 2019 Bitcoin

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What's happening on earth with the US yield curve?

US Treasury yield at 10 years, 4 hour chart analysis

In recent months, the US bond market has recorded exceptional moves, due to uncertainty regarding Fed rate hikes. While the European Central Bank, the Bank of England and the Bank of Japan still maintain their near-zero reference rates, the US Treasury market and the US yield curve continue to be the focus of attention.

Analysts are trying to understand the recent fall in US rates, as even Fed chairman Jerome Powell has admitted that markets are now assessing a sharp slowdown in the US as well, with a reversal of the full curve approaching rule. The long-awaited Friday dovish change in Mr. Powell's rhetoric triggered another mammoth contraction in stocks, while yields actually rose after the keynote speech.

Fed Chari hinted at the possibility of changing the program of its quantitative narrowing, and this has given back hope to the bull that the Central Bank, or at least will try to support the markets along the way. While the bond market has already "discounted" all the rate hikes for 2019, it will be very interesting to see the trend next week after the speech, with a decidedly more negative trend in yields.

US stocks seeking stability after the roller coaster ride

Dow 30 Futures, analysis of the 4-hour chart

The first week of trading in the year has been crazy on Wall Street, with historical short-setbacks, sudden arrests and wild intraday trends as a norm. The bulls hope to see some stability in the wake of the dovish shift from the Fed, but from a technical standpoint, what we are seeing is a manual bear market rally.

Despite the 5% rally in the largest equity benchmarks, most stocks have not yet confirmed a short-term trend change. We do not see the Fed changing as a game change here, and we clearly expect the bearish trend to continue, but after the December hyper-bearish, it could be a stronger rally, especially if Trump will provide a surprise trade-off. next week.

Trade negotiations have started between the United States and China

Shanghai Composite Index CFD, 4 hour chart analysis

The 6th^th On Monday the commercial negotiations between the two superpowers are expected and investors from all over the world are hoping for a quick agreement, which would eliminate one of the main risk factors perceived by the equation. While we firmly believe that Chinese issues are more structural, if the negotiations progress rapidly, risk assets will likely have a stronger counter-current rally in the long-term bearish context.

Since the start of the Donald Trump trade war, an agreement with China now seems the most likely at this time. The chairman has actively commented on the stock market correction over the past two months, blaming mainly Jerome Powell, but he recently admitted the role of commercial tariffs and this could suggest a much more constructive approach from the US side.

With the Chinese economy sending constant warnings and local stock markets paralyzed by deep negative trends, the incentives of the Chinese side are also clear, but it is difficult to say what the country's strategy will be. We anticipate rapid compromises in most of the key issues, but in the long run the application of such an agreement will be very demanding and we will not see and will not agree as a lasting bullish catalyst.

Yen in Focus in the Forex markets

USD / JPY, 4 hour chart analysis

Although the flash-yen of the Yen, which was a flash-crash in some of the major currencies of risk, was at least in part, caused by the low liquidity of the holidays, still indicates widespread fragility in the markets. USD / JPY is one of the most liquid forex markets, and the fact that an Apple warning caused such carnage means that the quiet years of the bull market are probably behind us forever.

While the Yen has rerolled a large chunk of its gains following the liquidation event, given the broader uptrend in the safe-haven currency, we may see more fireworks next week. As the dollar has remained stationary in recent months and the greenback still shows no new bullish momentum, USD / JPY may soon revisit lows under "normal" market conditions.

Day traders will probably enjoy volatile conditions with strong moves in both directions in the Yen, but from a broader perspective, traders should maintain their bullish trend towards the currency.

Fed Meeting Minutes and CPI Highlight the week

The week will be relatively low on key economic issues and even if the non-ISM manufacturing PMI on Monday and the US CPI report on Friday will have the potential to shift financial markets. With all the indicators that seem to confirm the global slowdown, in particular, a strong reading by SMEs and / or CPI could cause unrest in bonds, currencies and similar securities.

The central banks will probably dominate the news flow again, with the minutes of the Fed's Wednesday meeting, the Bank of Canada meeting on the same day, and Jerome Powell's speech on Thursday, all closely monitored by forex traders. Trading activity could resume even more in the Great British Pound in the second half of the week, since the speech by BOE Governor Carney and the monthly readings on GDP and manufacturing production will all affect the currency.