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Currency summary of the week. Markets catch some breath.

Currency summary of the week. Markets catch some breath.

created Natalia BojkoDecember 16, 2019

Last week was rich in numerous geopolitical events and some more important macro data. There was a lot of enthusiasm on the markets, a question, whether justified? Optimism (although hardly visible when the agreement is signed) is already largely included in the valuation of stock assets. In connection with this, the question arises, is this the end of index rally upwards and dollar appreciation? I think that the coming weeks will verify market sentiment with the facts.

A pound shot

Boris Johnson has something to celebrate. He has won a spectacular victory in the last parliamentary elections. This gives him a lot of scope to sign the agreement on the UK leaving the EU. The Prime Minister announced that Great Britain will leave the community by January 2020. The chances of renegotiating the contract are decreasing due to the fact that the divorce between the UK and the EU would have to be shifted again. The growing pound based on these events supports the generally accepted rhetoric that is afraid of the no deal scenario.

GBPUSD 15.12.2019

GBP / USD chart, H1 interval. Source: xStation 5 XTB

The conservative victory has allowed them to gain an overwhelming advantage in parliament. According to recent British media reports, not much is expected to change in the current government. It can be said that Johnson received from his countrymen one more chance to pull Brexit to the end.

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The pound gained from the election result. After testing recent increases, most analysts are counting on further appreciation GBP to dollar. Supply movements slowed around 1,33095.

What's up at the front?

During the week, several new details about the trade agreement emerged. This 86 one-page deal is to be signed by both countries' ministers, not presidents as yet. The first phase includes provisions mainly on Chinese imports of agricultural products from the USA. They are to constitute ⅕ of all imports, i.e. the amount of 40 billion dollars, with time increased to 50 billion. Negotiations regarding the second phase of the agreement are to be undertaken as soon as the first part of the agreement has been signed.

S&P 500, 15.12.2019/XNUMX/XNUMX

S&P 500 chart, H4 interval. Source: xStation 5 XTB

What does the agreement really bring? In a nutshell, its main goal will be to equalize inequalities between economies. Who is this compensation really used for? Neither China nor the USA intended to leave this war as a loser. The presidents of both countries declared tenacity, but considering the extent to which the signing of the settlement has extended, market expectations have decreased. Thanks to these components, the news of finding a consensus between the two countries did not cause major, impulsive supply or demand movements. All topics related to agricultural products, intellectual property protection, exchange rates, etc. were taken into account by markets on an ongoing basis. Therefore, the nine-chapter agreement is only the culmination of provisions already priced by the market. The situation has changed little. The United States is leaving tariffs unchanged, so it's hard to see trade acceleration. China hopes that, as announced, customs duties will be successively reduced in subsequent stages of the agreement.

ECB without madness

Last week an ECB meeting was held with the new president Christine Lagarde. European Central Bank in line with market expectations, leaves interest rates unchanged. What are the further vision for the QE program? It will remain valid at least until interest rate increases. The whole tone of the conference can be considered slightly optimistic. GDP forecasts did not change much. According to the head of the European Central Bank, accommodation policy is still needed. The presented forecasts assume limited inflationary pressure. According to Lagarde, looser credit conditions will accelerate expansion in the eurozone to reach the inflation target.

EUR / USD chart, H4 interval. Source: xStation 5 XTB

Eurodolar behaved very similarly to Lagarde's statements. Slightly optimistic overtones, also slightly appreciated EUR to USD. Will we be able to count on the stronger growth movements of this pair next week? Given the weakening dollar, this is not excluded.

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About the Author
Natalia Bojko
Graduate of the Faculty of Economics and Finance, University of Białystok. He has been actively trading on the currency and stock markets since 2016. It assumes that the simplest analyzes bring the best results. Supporter of swing trading. When selecting companies for the portfolio, he is guided by the idea of ​​investing in value. Since 2019, he has held the title of financial analyst. Currently, he is the co-CEO & Founder in the Czech proptrading company SpiceProp. Co-creator of the Podlasie Stock Exchange Academy project (XNUMXrd and XNUMXth edition).