The US dollar keeps stable against its main rivals on Tuesday, moving close to the highest levels in 2019. The strong dollar reflects the hope of investors for the positive development of the trade talks between the US and China. Investors are focusing on high-level trade negotiations in Beijing, where Washington is expected to continue pushing Beijing to undertake profound structural reforms to protect the intellectual property of the US companies, end policies aimed at coercing technology transfer and limiting industrial subsidies.
The dollar takes advantage of the investor nervousness surrounding the trade talks. The US dollar is still the most profitable currency in developed economies and all major central banks turn to them, which makes the greenback relatively attractive.
The US dollar index is stable at 97.04 points, after rising 0.45% in the previous session, moving closer to its highest level in 2019 on January 24. The index rises for the eighth consecutive session, mainly due to the weaker euro, which has the biggest weight in the index.
After 8 consecutive sessions with gains, the rally in the US dollar is now taking a small break, easing from recent yearly highs beyond 97.10 although trading within a narrow range.
The deteriorated sentiment in the risk-associated universe in combination with rising uncertainty over the progress of the US-China trade talks have been fuelling the strong rebound in the greenback from the 95.00 neighborhood recorded back in late January.
The EUR/USD pair was trading relatively unchanged at 1.1278 USD in Asian trade after losing nearly half a percent on Monday. The Euro has weakened for six consecutive sessions, and traders are expecting further losses as the critical 1.13 USD psychological support is broken.
The next level of support for the EUR/USD pair is the lowest level since last November of 1.1215 USD, which needs to be tested quickly.
The pair extended its bearish trajectory from levels beyond the key 1.1300 USD psychological mark and lost some additional ground on Tuesday. The pair fell to an intraday low level of 1.1258 – the lowest level since November 13, albeit managed to find some support at lower levels amid a modest US Dollar pull-back.
This year, the European Central Bank is expected to maintain a very flexible monetary policy as Eurozone growth slows down and inflation remains low. Last week, the European Commission cut sharply its growth forecast for the Eurozone in 2018 and 2019. Thus, the investors expect the ECB to keep the quantitative easing program in the coming months.
The British pound is trading by 0.15% higher, to 1.2869 USD, after collapsing by 0.75% in the previous session. Analysts expect the British pound to remain unstable due to the uncertainty surrounding Brexit.
The British Parliament will hold a debate on Brexit on February 14 for the changes that Prime Minister Theresa May wants for the deal with Brussels after last month’s rejection by a record majority in parliament.
The Bank of England Governor Mark Carney is scheduled to speak in London about the global trade tensions, but it is unlikely for Carney to come up with the different message from last week’s February Inflation report that lowered the growth forecast citing hard Brexit as a key economic risk to the outlook.
The British Pound passed through the support of the 62.30% Fibonacci retracement level to depreciate against the US Dollar to the 1.2848 USD mark. It is expected that the currency exchange rate will break the support of the medium pattern line at the 1.2845 USD mark to decline towards the level of 1.2718 USD. Besides, the 55-hour simple moving average is trying to catch up with the rate to give additional resistance to the rate.
On the other hand, the level of 1.2831 USD could push the rate back to the pattern to trade sideways between the 62.30% Fibo and the bottom boundary of the medium pattern line.