Wave Analysis by InstaForex

Washington and Beijing loosened the nuts. A thin world or calm before a storm?



The unexpected decision of the US administration to delay the introduction of 10% tariffs on a number of goods imported into the United States from China revived the markets. Investors began to buy cheaper assets.

Why did the White House retreat? Maybe the United States really wants to make concessions, or did they just see that Beijing was not afraid of their tariffs? It is enough to recall how China devalued the yuan quite simply in order to smooth out the negative effect of the duties introduced by the US.

It is noteworthy that today the People's Bank of China raised the yuan to the dollar for the first time in two weeks - up to 7.0312. Previously, the regulator continuously depreciated the national currency, as a result of which it updated lows since the spring of 2008.

Judging by the comments of Donald Trump, the US president's decision to postpone the introduction of new Chinese tariffs for a number of positions until December 15 is not a sign of progress in the Washington-Beijing trade negotiations, but rather a result of pressure from US companies.



"We are doing this taking into account the upcoming Christmas holidays so that some of the duties do not hit consumers in the United States," he said.

Thus, the head of the White House for the first time admitted that tariffs could harm the US economy.

Goldman Sachs believes that Washington's departure from its original plan to levy duties on all Chinese exports to the United States is a reaction to the fall of US stock indices.

According to Moody's, the recent events should not be seen as a de-escalation of the conflict between the United States and China: this is just a temporary delay.

"D. Trump is afraid to look weak and unable to achieve the goal. In addition, he fears that his chosen strategy of a trade war with China will be ineffective both in the eyes of his own voters and China itself," reports the Chinese publication Global Times.

"The US is making concessions as soon as negotiations between the two countries are on the verge of a complete break. Washington's latest softening said it recognizes that pressure tactics on Beijing aren't working," said Bai Ming, an analyst at the Chinese Academy of International Trade and Economic Cooperation.

However, regardless of the White House's motives, the latest news from the trade front caused a stormy positive reaction from the markets, allowing US indices to win back the decline of the beginning of the week, and the greenback appreciably strengthened against major currencies, especially against the yen. The USD/JPY pair has broken the 106 mark.

Data that was published yesterday also provided some support for the US currency, since the release showed the best (since 2006) two-month increase in core inflation in the United States. In July, the indicator increased by 0.3% in monthly terms and by 2.2% in annual terms. The fact that inflation accelerates after a sluggish start reduces the risks of aggressive easing of the monetary reserve monetary policy. The chances of a September cut in the federal funds rate by 50 basis points at once fell from 25% to less than 10%. The Fed leadership is becoming less likely to further lower interest rates.

Today, the yen against the dollar has returned to growth amid continued geopolitical risks.



Despite recent U.S. moves, markets are not waiting for a quick resolution to Washington and Beijing trade disputes, which put pressure on the entire global economy.

Analysts also note the presence of geopolitical tensions in different regions of the world, which supports the demand for the yen.

"Recent news provides more opportunities to strengthen the dollar and weaken the yen, but this does not mean that trade differences are resolved. In addition, there are many geopolitical risks, such as the situation in Hong Kong, the upcoming Brexit and the situation around Iran. Therefore, I do not expect significant demand for risky assets," said Tohru Sasaki, an analyst at JPMorgan Chase Bank.

It is assumed that if China feels D. Trump's weakness and begins to dictate its conditions, then we will again see the corresponding market reaction, the opposite of the one observed yesterday.

As for the main currency pair, it still remains within the wide lateral range.



The gloomy results of recent studies of business sentiment in Germany today have been confirmed by actual economic indicators. According to Destatis, German GDP declined 0.1% in the second quarter compared to the first quarter.

According to analysts, two negative quarterly indicators in a row will indicate a technical recession in the country, which is the locomotive of the entire European economy. However, the eurozone as a whole remains in relative safety: its GDP continued to grow in the second quarter, although only by 0.2% in quarterly terms.

Analysis are provided byInstaForex.

Forecast for EUR/USD on August 16, 2019

EUR/USD The main news yesterday was the release of excellent US retail performance in July. Base sales increased 1.0%, total sales increased 0.7%. An hour later, data on industrial production came out worse than forecast, but the euro could no longer resist a decline. Industrial production in July fell by 0.2%. Euro lost 31 points.

Good US construction data is expected today. The number of bookmarks of new homes in July may grow from 1.25 million to 1.26 million, the indicator of permits for the construction of a new house can show an increase from 1.23 million to 1.27 million. And in the eurozone the trade balance for June, published today may decrease from 20.2 billion euros to 18.7 billion.



We expect the price to consolidate below the Fibonacci level on the daily chart 123.6% (1.1074). Formally, the underlying target of the Fibonacci level of 138.2% (1.0980) opens, but at the beginning of next week, investors can slow down in anticipation of the publication of the FOMC Fed minutes, which will be on Wednesday.



There is a steady decline on the four-chart. Therefore, after consolidating the price below 1.1074, we expect the euro to fall to 1.0980. *The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Control zones Bitcoin 08/19/19

Bitcoin is trading above the balance level for the second day. This became possible after stopping the fall during the test of monthly control zone in August. The middle course zone was also tested at the end of last week. The likelihood of an increase in the value of bitcoin increases. You should not expect a sharp increase in the price, however, while the balance marks are below the course, you should keep the purchases open at the end of last week. Sales can be closed completely, since the probability of falling below the level of $10,000 in August is 30%.



Favorable price for the purchase of the instrument will be at any level below $10,000. The first growth goal can be considered at the $10,749 mark. When bitcoin reaches this level, a partial consolidation of purchases and the transfer of the rest to breakeven will be required.

An alternative model has a probability of implementation below 30%, which does not make it possible to enter sales. The instrument is trading near the monthly control zone. This makes a further decline unlikely. If the decline occurs below $10,000, then the probability of a return to this mark in August will be at 70%, and in case of exit and closing of the month's trading below this level, the probability will increase to 90%.



Daily CZ - daily control zone. The area formed by important data from the futures market, which change several times a year.
Weekly CZ - weekly control zone. The zone formed by important marks of the futures market, which change several times a year.
Monthly CZ - monthly control zone. The zone, which is a reflection of the average volatility over the past year.

Analysis are provided byInstaForex.

Control zones GBPUSD 08/20/19

Today's plan is to bring purchases previously opened to WCZ 1/2 1.2199-1.2182. When testing the zone, consolidating part of the position will be required, and the rest should be brought to breakeven. The main pattern for entering the position will be the "false breakdown" of yesterday's high after the WCZ 1/2 test. If this happens, you must completely eliminate the purchase and enter a short position. The potential fall can reach a monthly low.



Work in the upward direction is still a priority. Until WCZ 1/2 has been tested, another entry into purchases is possible in case of a "false breakdown" of yesterday's low. If this happens, there will be an opportunity to enter with a favorable risk to profit ratio.

An alternative model will be developed if the pair overcomes the WCZ 1/2, and the closure of today's US session occurs above the zone. This will indicate the completion of the downward medium-term cycle and the transition to the phase of the upward impulse.



Daily CZ - daily control zone. The area formed by important data from the futures market, which change several times a year.

Weekly CZ - weekly control zone. The zone formed by important marks of the futures market, which change several times a year.

Monthly CZ - monthly control zone. The zone, which is a reflection of the average volatility over the past year.

Analysis are provided byInstaForex.

Will the Fed limit itself to one rate cut this year? The pound will remain volatile in the near future

The pound fell in the morning following the release of a report on UK public sector borrowing, while the euro continued to trade in a narrow side channel against the US dollar in anticipation of the July Federal Reserve minutes

The publication of the minutes will show how the committee looks at a further cut in interest rates this year, and to what level the rate can be reduced.

This week, a number of Fed leaders have already expressed their views, but it is premature to draw any conclusions. Let me remind you during the Federal Open Market Committee meeting, which was held on July 30-31, they decided to lower the interest rate by a quarter point, although some economists suggested that the Fed would lower rates immediately by half a percent. This was the first drop in more than 10 years.



Meanwhile, Fed Chairman Jerome Powell signaled that this decrease was purely corrective in the middle of the cycle, and it would not be entirely correct to count on a long reduction cycle in the future. Much will depend on the data on the economy that will come in the 3rd quarter of this year. So far, the only thing that could push the issue of lowering the rate by another quarter of a percentage point into consideration is the aggravation of the trade war between the United States and China, which is now at an impasse. Let me remind you that the new trade duties will come into force on September 1 of this year. In addition, very low inflation continues to be a problem for the Fed.

Given the fact that the unemployment rate in the US is at a record low and household wages increase without creating additional inflationary pressure, the Fed is just thinking about the risks of deflation, which many Asian countries suffer from.

Do not forget about the constant criticism of the work of the committee by Donald Trump, who "hung all the dogs" on the current Fed chairman Jerome Powell for what he delays in lowering rates and resuming the asset purchase program. By the way, the eurozone and the European Central Bank may return to such a program in the near future, which will further strengthen the US dollar against a number of risky assets and create additional problems for the export of American goods. In any case, Powell is still fighting off all threats from the US president, adhering to the neutrality that is so cared for within the Federal Reserve.

As for the technical picture of the EURUSD pair, it has not changed at all. Bears will attempt to update last week's lows with a test of support levels of 1.1060 and 1.1030. If bulls make an attempt to build an upward correction in a pair, then it is best to consider short positions in the trading instrument from the upper boundary of the side channel of 1.1130. A larger resistance level is the area of 1.1160.

GBPUSD

The British pound slightly fell against the US dollar after the release of the report on net borrowing in the UK public sector. According to data in July this year, borrowing fell by 1.3 billion pounds after a larger reduction of 3.5 billion pounds a year ago. Net public sector demand for cash in the UK in July fell by 14.8 billion pounds against 17.6 billion pounds a year ago. All this suggests that the situation with Brexit, although not so brightly, continues to affect macroeconomic indicators in various fields, which negatively affects the overall economic indicator.



In any case, the pound's further movement as a whole, like this whole year, will continue to be based on rumors and rebuttals from Brexit news, which exacerbates the overall picture and exposes the pound to excessive volatility.

As for the technical picture of the GBPUSD pair, the upward trend is limited by the resistance of 1.2175, a breakthrough of which will build a new wave of growth and lead to the renewal of highs in the areas of 1.2220 and 1.2270. The medium-term boundary of the downward channel is above this range and it would be impossible to go beyond it without a positive outcome of the situation with Brexit.

Analysis are provided byInstaForex.

GBP/USD. Light at the end of the tunnel: Merkel provoked the growth of the British currency

The pound paired with the dollar today updated three-week highs, reaching the middle of the 22nd figure. The fundamental picture of today did not portend such price leaps: the European voyage of British Prime Minister Boris Johnson was more of a formal nature, and Thursday's economic calendar for the GBP/USD pair is completely empty. Nevertheless, bulls of the pair found a reason for the upward impulse - and this reason was provided to them by none other than German Chancellor Angela Merkel.



Looking ahead, it is worth noting that the pound is now growing more on emotions - traders of the pair have been trading in constant fear and pessimism about the Brexit prospects for too long. Therefore, when among the gloomy news background a ghostly, but still "light at the end of the tunnel" had appeared, the pound's reaction was not long in coming. Moreover, at the beginning of today the head of the German government met her colleague from Britain with rather harsh rhetoric. She stated that "Britain has 30 days to resolve the Brexit issue to find an alternative to backstop." French President Emmanuel Macron, in turn, noted that there is no more time for additional negotiations on a new agreement - the parties need to build on the main positions of the agreements already reached. Boris Johnson, in his peculiar manner, "accepted the challenge" of Berlin and said that he would spend 30 days allotted to him to convince the EU that there was a viable alternative to the "back-up" mechanism.

This rhetoric did not surprise, but did not upset, investors: even on the eve of Johnson's visit, it became clear that the parties would defend their positions. Earlier this week, the British prime minister sent a written appeal to the head of the European Council, Donald Tusk, with a request to review the deal, primarily regarding the prospects for the Irish border. Brussels rejected the offer and lamented that London did not offer constructive ideas for alternatives to backstop.

In other words, traders were prepared for the fact that the parties at the meeting would only repeat the theses already voiced and disperse "in the corners of the ring" without any result. However, Angela Merkel still went beyond investors' expectations: she announced that London and Brussels will try to create a system that, firstly, preserves the terms of the Belfast Agreement, and secondly, retains Northern Ireland's access to the single EU market. In other words, we are talking about the notorious alternative to the backstop mechanism. The German chancellor emphasized that the parties will try to find a compromise solution in a relatively short time, that is, until October 31. Summing up, Merkel emphasized that London "can still solve the crisis."

In my opinion, the German Chancellor accidentally remembered the Belfast Agreement - after all, the issue of the Irish border is considered not only in terms of economic and customs barriers. Let me remind you that for half a century, there has been a bloody ethnopolitical conflict on the island of Ireland - the rebel forces sought the withdrawal of Northern Ireland from the UK with the subsequent accession to the Republic of Ireland. According to various estimates, about four thousand people died during the long-running conflict. A ceasefire was reached only in 1998, when the parties entered into the aforementioned "Belfast Agreement". The main points of this agreement state that the Northern Irish separatists renounce their territorial claims, and London, in turn, introduces local government and Parliamentarism in this region.



In addition, the agreement reached eliminated the border between Northern Ireland and the Republic of Ireland, and since then there has been a special economic zone regime. If London upsets this fragile balance that has been successfully working over the past 20 years, Britain could return to the chaos of political confrontation with the separatist forces of Northern Ireland. In particular, last year the Northern Irish party Sinn Fein announced that it was initiating a new referendum on accession to the Republic of Ireland. Under the conditions of a hard Brexit, taking into account possible economic losses and the effect of a tight border, the outcome of such a referendum is not difficult to predict.

Obviously, both London and Brussels are well aware of the risks they face. That is why the current (albeit symbolic) step of Merkel allowed the pound to demonstrate a significant correction throughout the market, including paired with the dollar. However, long positions on the GBP/USD pair currently look risky - after all, we must not forget that the parties only promised to "consider various options". And it is far from a fact that the proposed options will ultimately be agreed/approved by Johnson, the European Union and, ultimately, by the deputies of the House of Commons. Therefore, with a high degree of probability, the spring of nervousness will continue to contract to a certain limit, putting pressure on the foot. But if the parties still find a compromise and the likelihood of a deal will increase again, this "spring" will fire an impulsive price increase, and marks 1.25-1.27 will not be any limit.

Analysis are provided byInstaForex.

The trade war between China and the United States is in full swing and could lead to a new Fed rate cut



Recently, Donald Trump decided to increase trade duties on a group of goods totaling about $ 300 billion to 15%, which was previously assumed that it would be 10%. These duties will be effective from September 2019. Also, duties will be increased not by 25%, but by 30%, for a group of goods worth $ 250 billion from October 1. This was a response to China's imposition of $ 75 billion in fees, which will be in effect from September 1 to December 15. Beijing's move was also a response to Trump's previously imposed duties. In general, a chain reaction is started. At the same time, the parties continue to report that negotiations are ongoing and from time to time they signal a certain progress that for some reason no one is watching. However, the intensity of trade relations between China and the States is clearly visible, which leads to a slowdown in the global economy, as well as the economies of the States themselves and China. Naturally, not without another message on Twitter from Trump. According to the president of the United States, China should not have introduced new duties, but now, it has run into an increase in duties from the States.

In addition, Donald Trump once again "drove" under the head of the Fed, Jerome Powell, writing on Twitter that "he does not know who the worst enemy of America is, Xi Jingping or Jerome Powell." A hint, of course, of Powell's reluctance to take and reduce the rate immediately by 100 points, as Trump wants. A little later, there was a loud statement that China had stolen billions or even trillions of dollars of intellectual property from America for years and was going to continue this activity. Trump said that "it's time to put an end to this." The US president also appealed to American companies having production facilities in China with an appeal to look for an alternative as soon as possible, and even better to return to America. The fact that the production of any product in America is more expensive than in China several times, and accordingly, the price of many goods now produced in China will increase multiple times if production is transferred to the States, Trump does not care. End consumers will pay, and the company will suffer losses, sales of which, of course, will fall due to price growth and reduced demand. Meanwhile, Trump will receive new tax revenues, or not Trump, but the new US President, whose elections will be held in 2020. It is precisely the second term of Trump's presidency that now raises a huge number of questions. China openly expects Trump to lose the election. The longer the trade war with China lasts, the worse America's economy feels, and the better ordinary citizens feel the recession, the less chance that Trump will be re-elected. Even if Trump is right and "China has profited from America for years," the electorate is primarily interested in its own welfare, prices in stores, and the lack of a deficit in the goods it needs. Under Trump, all Chinese products have risen in price, while American or European counterparts are much more expensive. If a trade war also begins with the European Union, then the Americans, who are big fans of the European automobile industry, will also experience a rise in prices for European cars. In this case, it is unlikely that Trump's fans will increase in the election. And, of course, all this will have a negative impact on the US dollar.

Analysis are provided byInstaForex.

TForecast for GBP / USD pair on August 28, 2019

GBP / USD pair
Yesterday, the growth of the pound negates the fall of Monday. However, on the daily chart, it met insurmountable resistance of the indicator line of the balance line (red), which is currently slightly below the indicator line of the MACD trend line (blue).



A double divergence has already formed on the four-hour chart. The reversal signal of the Marlin oscillator has amplified while the market is still "hot". The signal line of the oscillator is still in the growth zone and in fact, the price is higher than all indicator lines. On the daily chart, the price can gather strength and go on the assault to the second target of 1.2350/81. To fix the primary reversal signals, it is necessary to fix the price below the minimum of yesterday, which will also correspond to the price drift under the embedded line of the price channel on the daily chart. The MACD line of four-hour scale also tends to be at this level. Probably, a key level is being formed here. In case of a breakout, you should wait before sales.



Analysis are provided byInstaForex.

Britain on the verge of a constitutional crisis



The pound fell sharply by 100 points on the news that Boris Johnson could try to interrupt parliament for a month - from September 11 to October 14 - so that Parliament could not stop Johnson from withdrawing Britain out of the EU without an agreement.

This is a constitutional crisis. The queen has such a right to suspend the work of the parliament, at the proposal of the prime minister. However, such an action on this occasion is a clear crisis. Given the minimal majority of conservatives in parliament - it is very likely - to have a political crisis and new elections.

Analysis are provided byInstaForex.

Control zones AUDUSD 09/02/19

The August movement is a complex impulse structure. At the beginning of last week, there was consolidation above WCZ 1/2, which indicates an upward priority. Today, the WCZ 1/2 0.6723-0.6716 test is taking place again. Purchases from this zone are profitable, since the growth target continues to be the weekly control zone 0.6838-0.6825.



The flat movement of August implies the continuation of work from monthly extremes, so they should be taken into account in trading plans. To break the ascending structure, it will be necessary to close today's trading below 0.6716. This will make it possible to resume work in a downward direction. The first goal of the fall will be the low of August.



Daily CZ - daily control zone. The area formed by important data from the futures market, which change several times a year.
Weekly CZ - weekly control zone. The zone formed by important marks of the futures market, which change several times a year.
Monthly CZ - monthly control zone. The zone, which is a reflection of the average volatility over the past year.

Analysis are provided byInstaForex.