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The key event of this week, the US Federal Reserve's meeting on Wednesday, is not likely to bring any significant news to the market. The economic background looks unsustainable, while the data from the labor market turned out ot be mixed. Thus, there is no reason to expect the optimistic sentiment under current conditions.
On Friday, the US Treasury published a regular report on the inflow of foreign capital for the period including January. The overall balance is at a minimum of July 2016. Notably, the outflow began once Trump's administration initiated a trade war with China. There is a massive exit of foreign investors from the US stock market while the indices are maintained close to the highs at the expense of domestic reserves. However, one serious event is enough to question the stability of the entire pyramid.
Positive sentiment triggered by the expectations of the US-China trade talks' successful outcome supported the market throughout 2019. Nontheless, it is gradually disappearing. The meeting of the US and China's leaders had to be postponed supposedly until mid-April. Presumably, there are no ready documents to sign.
Doubtless, the deal will be concluded. Yet, its outcome will not depend on success of the US attempt to achieve the outcome they want, but rather on success of China's attempt to find formulas allowing the restriction on one side to gain an advantage on the other one. China can negotiate indefinitely, especially since it continues to carry out the previously planned reforms and has already begun a monetary stimulus policy. For the United States, time is much more important that makes any delay in reaching the final agreement a negative factor for the dollar and increases the pressure on it.
The market expectations based on the FOMC meeting's outcome also imply the greenback's decline. Traders anticipate changes in outlooks for the GDP, labor market and inflation to be either insignificant or downward. Moreover, the tone of the accompanying statement is to be clearly dovish. On Monday morning, investors did not expect the Funds rate to be raised in the current year. According to the CME, a change in the forecast for the interest rate may be a key to the further greenback's movement.
Another factor that can change the estimates regarding the following movement of the US dollar is the Fed's stance towards the balance sheet reduction. The key point here is probable purchases of the treasuries instead of mortgage bonds that might be sold since the budget deficit is skyrocketing. Even though these operations will be executed within the balance sheet reduction plan, they actually mean the Japanization of the Fed's policy.
EURUSD
The growth rate of inflation in the eurozone remains moderate. Thus, February's consumer price data came out exactly in line with forecasts providing some support for the euro. Consumer prices advanced by 0.3%, while the year-on-year inflation undershoot the ECB target level and increased only by 1.5%. Nontheless, it indicates some sort of stability.
The euro has a weak bullish trend on Monday. It is still not strong enough to predict the price to go above 1.1360-65. The pair is likely to trade within the range with the support at 1.1290/1300. Market players are not expected to make any serious moves before the new data is out. Currently, they are waiting for the FOMC meeting.
GBPUSD
Theresa May's proposal to extend the deadline for Brexit to June 30, 2019, may ultimately favor all interested parties. This postponement will allow the elections to the European Parliament to be held under usual conditions, while the likelyhood of a no-deal Brexit will be lowered, so the investments stop reducing. Uncertainty remains, yet its negative impact on the pound will lower allowing it to make an attempt for further increase.
The pound can take advantage of lesser tension with a high likelihood of testing the recent high of 1.3350. At the same time, strong movements are unlikely until March 20. The pair will be trading sideways until any news regarding the US dollar appears.
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