The Euro: the Decline may worsen after ECB action
The volatility of markets in recent days is reduced. Mood balance between concerns over the global economic slowdown and hopes that the next steps of China and the United States will be able to stop the fall in domestic consumption. For example, China announced measures to support demand, including a possible waiver of restrictions on the purchase of cars. However, these measures still do not solve the underlying problem: trade disputes continue.
Moreover, various incentives – in the US, in China – on the contrary, show gambling and the tendency of officials to the idea of “the eternal conflict”. It is significant that none of the parties still has not handed over positions on such important items as technology and intellectual property rights.
It becomes clear that without a breakthrough in negotiations, the current trends might be negative development in the foreseeable future. In particular, the yuan is likely to remain under pressure, embodying predictions about the fall to 7.22 per dollar at the end of the year. Due to such a strong weakening of the national currency, China may be a major exporter of deflation in the world. This pressure will be less in the U.S., where the input tariffs lead to higher prices
Besides, simmering trade conflicts risk to fuel further strengthening of the dollar not only against the Euro, but to most other major currencies, because the fed will be less space for policy easing. Without the resolution of trade disputes, risks USD to continue its ascent towards 14-year highs near 104 achieved in 2016.
However, the increase may be the depreciation of the Euro in response to the decline in interest rates, which the ECB promised in September. If the Central Bank next month will keep my word, and even will launch a new round of QE, EURUSD for Christmas is able to fall to 1.05. Moreover, this trend runs the risk to stretch and for the entire first quarter 2020го. However, it is unlikely that the Central Bank will generally disturb the Euro to fall below parity with the dollar. The main thing that it helped the economy and helped to avoid unnecessary increase of the national debt.
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