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FX FUNDAMENTAL ANALYSIS


stimulative and market-opening measures are being wheeled out. Required reserve ratios may be reduced in the coming weeks. India, the world’s largest democracy national elections take a month and will begin on April 11. Foreign investors have favored Indian equities, buying $7 bln this year and helping lift the stock market in all but three weeks


in first quarter.


April 12 is an important date for


the UK.


It is the last day to declare its intentions toward the EU Parl i amentar y elections. With the Withdrawal Bill having been defeated for the third time in the House of Commons, the UK must seek a longer extension or leave without an agreement. There is little appetite for either alternative, but there appears, at least at the first attempt, no parliamentary majority for any course.


US Dollar According


to surveys, most


economists had expected a recession in the next two years, which is within the lag time that has historically been


8 FX TRADER MAGAZINE April - June 2019 the


signaled by the inversion of the US yield curve. The inversion strengthened the pre-existing conviction. It does look as if the US economy slowed sharply in Q1,


part that was hampered by the government shutdown. However,


Euro especially in the first


The European Central Bank did not wait for staff forecast updates before expressing its concern about the region’s growth prospects. The notice it gave investors in February was made good on in March. This year’s forecast was slashed to 1.1% from 1.7% projected in December, and seemingly a g g r e s s iv el y, it recognized the


risks


remained on the


Then


the data has turned more mixed, which is what one might expect as the economy recovers from the soft patch. We are projecting around 2% growth in Q2. There is no FOMC meeting in April; the next one is May 1.


In the


meantime, we expect officials to lean against market expectations of a rate cut and more this year. As the following report shows, the median forecast in the Bloomberg survey is consistently more dollar negative


than the


one-month forward. The yen is the sole exception, and the deviation is minor. We have a more constructive outlook.


downside. the


simply dreadful f lash showed their prescience.


The manufacturing PMI fell deeper into contraction (47.6 vs. 49.3), and the composite slipped to 51.3 from 51.9, a new cyclical low. There are unlikely to be fresh measures announced at the April 10 ECB meeting. Terms of the new Targeted Long-Term Refinance Operation may not be announced until


later in the


quarter. The immediate focus may shift toward minimizing some of the hardship caused by negative interest, which will continue for several more quarters at least. We expect the eurozone economy to find better traction as the quarter progresses.


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