Focus of the market: Trade agreement between China and the United States, as well as the Brexit factor
The Reserve Bank of Australia expectedly left its key interest rate unchanged at 1.50%, explaining in its communique as its level fully corresponds to the state of the economy and justified by low and stable inflation, as well as, a strong labor market. In general, the final resolution was positive but could not support the national currency rate.
We have repeatedly pointed out and continue to adhere to this view that one should not expect from the world's largest central banks and other central banks, whose currencies are classified as "majors," decisions to raise interest rates in the current situation. The main reason is the apparent slowdown in the growth of the global economy, as well as, the leaders of the United States, China, and the eurozone.
At the moment, many in the market are hoping that the new decision on trade agreement can correct this situation. They believe that it was trading wars that caused the beginning of the process of slowing global economic growth but, in our opinion, this opinion is erroneous. The trade wars only intensified the processes at the beginning of the economic recession but did not cause them since the problem here is more profound and systemic.
The economic boom observed since the beginning of the tenths contained unhealthy growth at its core after the "cleansing" by the crisis of distortions and shortcomings in the past. It was the result of unprecedented incentive measures, which led only to camouflaging old problems and not solving them. Saving everyone from bankruptcies in a row led only to the fact that the problems generated by the previous decades, which turned out to be a vicious monetary and economic policy, in general, were driven into hiding. The problems of poverty have not been resolved and the pursuit of an economic policy aimed at supporting large business or rather a financial oligarchy which only made the rich richer. Entire countries were under heavy debt burdens, recall at least in Greece. In the United States itself, national debt reached cosmic values.
That is why we are skeptical about the prospects for further growth in demand for risky assets. It is true that it can be local after the signing of a trade agreement between Washington and Beijing, however, this will unlikely fix it.
We expect that in the wake of the decision on Brexit and the new trade agreement between the US and China by the end of the month. The foreign exchange market is unlikely to undergo significant changes and the overall lateral dynamics is likely to continue.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1320 and remains under pressure against the background of the approaching Brexit and investors' departure from risk. If the pair overcome this mark, it can continue its decline to 1.1250.
The GBP/USD pair remains under pressure in the wake of the Brexit situation. If the price drops below 1.3145, it is likely that it will continue to fall to 1.3055.
The material has been provided by InstaForex Company - www.instaforex.com