How to quickly change the scenery in the financial markets! In early 2020, investors were encouraged by the signing of the US trade deal, and China, the MSCI index of global stocks grew by 3% by the end of the first week of January, and even conflict in the Middle East did not frighten fans of risky assets. US bonds look even better. The inversion of the yield curve has been safely forgotten, no one thought about the recession. On the contrary, all praised the Fed for its proactive cycle of monetary expansion. With the advent of coronavirus everything has been turned upside down.
It seems to be an epidemic, according to the percentage of mortality, is not as dangerous as the previous ones, but globalization and the growth of China's share in global GDP since the pandemic of 2003 from 4% to 17% of sown panic in the markets. Bloomberg experts reduce China economic growth forecast from 5.9% to 4,5%, Barclays, Oxford Economics and UBS and did see it below 4%, the Chinese PMI falling and economic adviser to US President Larry Kudlou argues that the growth of the American boom exports may be delayed due to coronavirus. Most likely, Beijing will get a reprieve in the performance of commitments to increase procurement of agricultural products from the United States.
Another inversion of the yield curve, with the help of which were predicted recession in the US economy makes the futures market talk about a 50% probability of the two acts of the Fed's monetary expansion in 2020. S & P 500 develops a correction, and on safe-haven demand and strong US statistics support the greenback.
Dynamics of the US yield curve
Source: Financial Times.
Thus, the scenery changed, but whether the coronavirus cause investors to abandon the idea of long-term longs on EUR / USD, based on the acceleration of the economy of the eurozone because of the cease-fire in the war and US trade and China's slowing GDP while the US due to Boeing? According to the latest Reuters poll of experts who predict a strengthening of the euro against the dollar by 4% by the end of 2020 - no. Judging by the decline in the major currency pairs to the base of the 10th figure - yes.
Dynamics of eurozone GDP and leading indicators
Most interesting is that the coronavirus closed his mouth to Donald Trump, who had been going to start a trade war with the EU. US president understands that his activity in this regard will tie another dumbbell at the feet of the American stock market. Not the best news on the eve of elections. Attempt to weaken the greenback by means of the implementation of the complaints mechanism companies from the United States to a competitive devaluation looks miserable. Washington received the right to impose duties, even in those countries that are not included in the black list of currency manipulators, however, as shown by recent history, rates lead to the strengthening of the dollar, and not vice versa.
Change of scenery in the Forex significantly worsened the mood of "bulls" on EUR / USD. The rapid growth of the pair at the end of January returned to them hope, but its failure to break above 1.11 has become a sign of weakness of buyers. They can only hope the disappointing statistics on the US labor market and try to return the quotation above 1,105.
Analyst and forex forecast LiteForex