The dollar’s rally was interrupted dovish hints of the fed

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The dollar index turned sharply last week after failing to consolidate above 99, the comments of the head of the Federal reserve Bank of St. Louis Bullard, who noted that a sharp decrease in the yield of treasuries and the negative impact of trade war on the US economy require aggressive action by the fed. According to him, the current level of interest rates “too high”, so it is better to “adequately adjust” than to move in small steps. The rate reduction of 0.50% would be consistent with market expectations.
Weak statistics on the us labor market, released Friday, reinforced the faith of market participants in the aggressive rate cut and crushed the attempts of the dollar to rebound. A new week started at levels below the July highs for the index. EUR/USD returned to the previously broken support 1.1, which is now resistance. Attempts to move significantly higher is not successful, the couple konsolidiruyutsya waiting for new drivers.
Dances of the British Parliament around Brekzita continue, the political crisis finally led to the final split of the conservatives when Johnson put the question bluntly: either we leave the period without a contract, or re-election. Never had one or the other. Among conservatives there were the renegades, joined those who demanded a ban Brekzita without a contract, and the relevant bill was passed. Then they were excluded from the conservative party. As a result, it has lost the majority, and a vote of no confidence in the government, too, was not made.
The result of unsuccessful political maneuver was the fact that Johnson has been losing its political weight in the eyes of the EU, because more is not the representative of the parliamentary majority. Unlikely now he will be able to achieve better than may, conditions. Therefore, considering the parliamentary ban on Brickset without a contract, will be accepted or rejected previously, the plan may, either another delay. This is positive for the GBP/USD, the pair quickly rebounded from the bottom in the area of 1.20. Want to put on further growth, however, the topic remains politically charged. We propose to wait for some pullback after a sharp recovery.
USD/JPY recovers for the next burst of hope for the promotion of us-China negotiations. We do not believe it, and offer to look for entry points to short. 107.5, in our opinion, interesting level. Also with the AUD/USD. A sharp rebound in this pair, in our opinion, is corrective in nature, and the fall will resume. Question – what are the levels. It depends on the decisions and comments of the Federal reserve this month. We offer to refrain from trading this pair.
USD/CAD falls, as in the last review of the Bank of Canada traders saw signs of stiffness. Given that oil is now recovering and the fed is waiting for softness, the decline may continue. Given our negative expectations for the AUD, we believe the prospective short AUD/CAD, especially because a couple now in the area of active resistance.
The ruble
The ruble benefited from the correction in the dollar across the entire spectrum of FOREX, the recovery of oil and risk appetite, and went to the support of 65.5 to the dollar. We don’t expect it to be broken this week, and suggest buying the ruble while he was in the area. Either will be a correction to the decline, which took place last week, a new wave of growth is already above 67. In any case, in our opinion, will have the opportunity to take profits.
The stock market
S&P-500 went up from volatile consolidation, breaking 2950. The market seems to believe that the fed wins a trade war, and ignores the risks. If USD/JPY aggressive reduction of interest rates, the fed is unlikely to lead to growth, because the demand for the risk neutralized decrease of the yield carry trade, then the stock really can shoot. We believe that the expectations for the fed will help the market to move higher, but before the meeting, suggest to take profit. The same position we have on Russian securities. Even if the ruble is now somewhat weakened, as we expected and for which there are technical preconditions, actions, rather, make another attempt growth.
Dmitry Golubovsky
FG “Kalita-Finance”