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23.04.201808:16 Forex Analysis & Reviews: The dollar has chances to continue strengthening

Long-term review

The foreign exchange market this week shows the US dollar ended on a positive note with a wave of two reasons, the first is the noticeable decline in the tension of geopolitical risks, second is the reduction of possibility that the world's largest central banks will continue to actively get rid of incentive measures and who to raise interest rates.

The previous week had various events including the reduction of expansion risks in the conflict between the Middle East, Russia, and the United States, as well as news about the initial negotiation process between North Korea and the United States. The US was able to maintain interest in the American currency.

The dollar strengthened mostly against all major currencies except for the Japanese yen and the euro. It should be noted that commodity and commodity currencies such as Canadian, Australian, and New Zealand dollars were in favor. On one hand, they received support with hopes that the CBA of Canada, the RBA, and the RBNZ will go along with the Fed's course and will raise interest rates. But this time, it did not happen and could not happen because central banks clearly do not want to hurry due to fears that growth of the world economy may be unsustainable. Also, US President Donald Trump promised of "not touching" his allies and not declaring them trade wars can only be a temporary reprieve. In addition, the slowdown in the Chinese economy does not show optimism.

The sideways trend of the euro against the dollar is because of the strong fall in expectations that the ECB will decide to abolish the stimulus measures now. When the FRG and eurozone economies began to decrease its growth momentum that they received last year, the reason is believed to be that European regulator will stop stimulus measures in September this year and will start raising interest rates next year.

While the Bank of England is also not really satisfied. Over the past two months, the British economy started to slow down and there is a sharp decline in inflationary pressures from 3.0% to 2.5%. Based on opinions, the regulator will take a wait-and-see pause which will undoubtedly lower expectations of growth rates in June. In addition, the issue of Britain's withdrawal from the EU is not yet closed and it seems to threaten the British economy with serious problems. This could be the reason why the euro and sterling may continue to fall. The British currency has done this and the euro could start catching up after the ECB meeting this week.

The dollar began to receive additional support again on the wave of growth in the yield of government bonds of the US Treasury. The yield of the benchmark of 10-year Treasuries again approaches the important psychological level of 3.0%. The week of paper was completed at 2.60%.

Summarizing, it should be noted that if this week does not lead to a new geopolitical exacerbation, the dollar may continue to strengthen against major currencies.

Forecast of the day:

Despite its decline, the EUR/USD pair remained in the range that has formed over the past three months. The pair may try to adjust upward to 1.2295, but most likely, it will continue to fall. If this level is settled, a downturn should be expected and overcoming the 1.2260 level falls to 1.2200.

The GBP/USD pair will also attempt to reach 1.4040-45. But we believe that it should be sold on growth with probable targets of 1.3960 and 1.3910.

Exchange Rates 23.04.2018 analysis

* The presented market analysis is informative and does not constitute a guide to the transaction.

*A análise de mercado aqui postada destina-se a aumentar o seu conhecimento, mas não dar instruções para fazer uma negociação.

Pati Gani,
Analytical expert of InstaSpot
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