Dollar tossed a bargaining chip

Will the United States sacrifice Hong Kong to enter into a trade agreement with China?

You can talk arbitrarily for a long time about the bright future of the euro, but until the US-China trade war is over, Britain has not left the EU, and American and European statistics continue to indicate a divergence in economic growth, EUR / USD will go down. Mixed data on business activity in Germany and the eurozone made investors talk about very slow GDP dynamics over a long period of time. On the contrary, the rise of the US purchasing managers index to a 4-month high and the growth of consumer sentiment from the University of Michigan from 95.5 to 96.8 in November once again convinced that the US economy was all right.

Plato is my friend but the truth is dearer. Donald Trump discusses what to do, whether to sign a bill to support protesters in Hong Kong or to side with “my friend and incredible boyfriend” Xi Jinping? According to the American president, who allegedly hinted to his Chinese counterpart about problems with the trade agreement in the event of the introduction of troops into the city-state, he saved Hong Kong. Otherwise, millions of soldiers from the Celestial Empire would have destroyed him in 14 minutes. Well, you will not praise yourself, no one will praise. One thing is obvious: on the table of trade negotiations between the United States and China, another bargaining chip appeared. At the same time, rumors are growing in the market that there will be no phase 2. The parties are moving towards the signing of a comprehensive agreement.

The end of the trade war will allow counting on the restoration of the German economy that suffered from it, which, coupled with an orderly Brexit, can push EUR / USD quotes to 1.15-1.16. The question is when? Everything will depend on the form of economic growth of the leading eurozone economy. November business data show that you can’t even dream of a V-shaped recovery. In the best case, it will resemble the letter U. Despite the growth of the German index of purchasing managers in the manufacturing sector to a 5-month high, PMI unexpectedly disappointed in the services sector, which lowered the composite index of business activity of the entire eurozone from 50.6 to 50.3. On the contrary, its American counterpart grew in November, which returned the topic of divergence in economic growth to Forex and extended a helping hand to the US dollar.

The weakness of the eurozone GDP was mentioned in her first speech as head of the ECB and Christine Lagarde. According to her, the central bank will continue to support the European economy and respond to future risks, but monetary policy cannot and should not be the only game in the city. A currency block needs fiscal stimulus like air.

In my opinion, the Frenchwoman will not be such a “dove” as her predecessor Mario Draghi, which should be regarded as a “bullish” factor for the euro. Nevertheless, for his rally to $ 1.15-1.16, not only this is required, but also the end of the trade war, an orderly Brexit and the restoration of the German economy. On the contrary, if the United States and China again fail to agree, and the White House raises duties on imports of European cars, EUR / USD may slide to 1.06-1.07.

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