Dollar repairs its image as GDP boosts optimism
The European currency failed to hold the gains of recent bullish momentum, which led EURUSD above 1.20, as investors suddenly began to buy dollars against the backdrop of uncompromising growth in the US economy. Markets have tried to distract from Trump and North Korea, especially since with Trump's mild reaction to the recent launch of the North Korean missile, the degree of uncertainty has dropped significantly. As noted before, the fundamental picture of the dollar pointed to its excessive oversold state, recently almost entirely due to speculative pressure. One of the strategists of Goldman Sachs on the fixed income market joined a group of analysts who pointed out in the interview that the dollar was undervalued because of the exaggerated political and geopolitical risks.
Although the Fed is not able to bring inflation to a comfortable trajectory, investors have realized that the regulator can deliberately let the labor market overheat in order to understand where the Phillips curve will work again. Data on household expenditure and GDP exceeded expectations, with GDP growing 3.0% year-on-year in the second quarter, household spending 3.3%, which returns a version of a temporary slowdown in inflation. In addition, Janet Yellen did not give clear instructions regarding the December increase in Jackson Hole, preferring to get more data before setting expectations on the market. Investors also perceived the lack of hints for the weakness and the plight of the Fed, which is trying to smoothly remove the third rate hike from the agenda.
The optimism about the US economy and the dollar balances the general confidence of investors in the ECB's September decision to roll out QE and makes the game less clear. Inflation in the euro area rose to 1.5%, the Bureau of Statistics said on Wednesday, leaving the forecast at 1.4% behind. This lays the foundation for the more aggressive rhetoric of the ECB on September 6, as well as subjectively adjusts the markets to the desired outcome. Draghi will definitely announce a reduction in QE in September, but the fate of the euro will depend on the scale of the reduction. It is worth remembering that in Jackson Hole Dragi said that the regulator will move in small steps and very slowly to keep the process, and hence inflation under control. To that, the excessive strengthening of the euro is not in the interest of the ECB, which was announced in the last protocol, so the turn will be carried out extremely gently. Comparing the growing bullish optimism about the US economy and the ECB's readiness for change, the level of 1.20 is likely to retain the status of resistance.
The dollar strengthens pressure on its opponents from the major currencies, the GBPUSD lost 0.3% despite an unexpected improvement in consumer sentiment, which is likely to be attributed to the seasonal factor (ending of hot summer season). Currencies for carry trade such as USDZAR and USDRUB have not yet reacted positively to the US economy. USDRUB declined by 0.3%, but the likelihood of return to the upstream channel is high, given that the Minister of Economic Development Maxim Oreshkin made an intervention, believing that reducing inflation allows you to cut the rate further. Given the above factors, it becomes possible to enter into convenient purchases for USDRUB.
Arthur Idiatulin
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