Powell breaks taboo & opens a Pandora's box

15. Nov. 2019

This week Fed Chairman Jerome Powell was speaking to Congress. He the things that may modify the state of the foreign exchange market. It is not about the Fed rates and the monetary policy vector, but about problems that have been trying not to talk about, because attracting attention to them is a very risky idea.

We are talking about the so-called “three Ds” which are major US problems and precisely because of which it can collapse into the abyss. They are Government Debt, Budget Deficit, Trade Balance Deficit.

In our reviews, we have already mentioned that more than once. The markets preferred to remain silent about “three Ds” existence since this is a time bomb for the US economy It's only a matter of time before it detonates. The US debt exceeds GDP and reached $ 24 trillion, the budget deficit is about a trillion dollars a year, the negative balance of export surplus on an annualized basis has exceeded $ 0.5 trillion.

These figures also tend to deteriorate, since the construction of the pyramid of public debt in such conditions is inevitable and sooner or later it will collapse. Sum up, the dollar and the US economy will be under ruins.

Therefore the markets are trying not to think about it. However, this week, Powell upset the stability and attracted the attention of markets to the problems of public debt and budget deficits, noting that without their fundamental decision, the US won't help any Fed action. The current rate leaves very little chance for the action of the Central Bank in the event of a crisis. Powell admitted that this time the Fed is unlikely to be able to pull the United States out of depression, as it was in 2007-2009.

Focusing on the “three Ds” is a very bad signal for the dollar. If the markets turn their attention to these problems, the dollar may begin a very protracted decline, the bottom of which is simply not visible from the current height. So, our position to sell the dollar has only received additional argumentation.

It is worth noting the positive statistics on German GDP. Positive because the country escaped the recession and was able to demonstrate even minimal, but still GDP growth (0.1% with the forecast of -0.1%). The eurozone as a whole also showed GDP growth (0.2% with the forecast of 0.1%). In this light, the current price of the euro seems quite attractive for us to purchase it. The variation of the hundred points is permissible. Remember set up small stops.

The pound ignored weak macroeconomic statistics (retail sales appeared worse than expected in the negative zone). Which once again confirms our recommendation to buy a pound at the earliest opportunity. The only threat to the pound is Brexit. But from this side, problems should not be expected until the election results are announced. So we continue to look for points to buy the pound.

China showed weak data. Which again renewed the purchase of safe-haven assets. Nevertheless, buying gold or the Japanese yen you should be careful, since any positive news regarding the negotiations between the US and China may stimulate local sales in safe-haven assets.