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The U.S. dollar has been in a downtrend amid geopolitical issues in the Middle East and a dovish Federal Reserve stance.
Thus, both EUR/USD and GBP/USD have post multi-month highs fueled by ongoing U.S. dollar weakness. The greenback has moved sharply lower over the summer months as traders price in a more dovish Federal Reserve. We expect that the downward pressure on the dollar will continue.
EUR/USD – Weekly
GBP/USD – Weekly
Since the FOMC meeting in July meeting, a string of data releases has pointed to growing weakness in the US economy, suggesting that the Fed will start to trim interest rates in September. Financial markets currently price in a 67.5% chance of a 25-basis point and a 32.5% chance of a 50-basis cut.
Last but not least, the DAX has posted a new all-time high.
DAX – Weekly
The trend is our friend. However, the market’s high levels should also be a warning to investors. A look at stock market and monetary history proves it: for years, money was practically free, then the Fed and other central banks raised interest rates sharply due to inflation, so that interest rates have been higher than inflation for some time now. Whenever this was the case, a recession was the result. The money printing machine from the days of cheap money suddenly becomes a huge problem that causes the economy to collapse. Investors should therefore be on alert.
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Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.
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