The euro retreated to 8 daily low despite weak US data

The dollar managed to hold its positions despite weak data that have been published. Durable goods orders in the US declined by 2.8% in February from 4.7% a month earlier. Economists had expected a decline of 2.5%. However, the dollar managed to hold its position against most currencies.

This week, the US currency was supported by the statements of Fed officials who said that it is possible, that the central bank will raise rates more than once.

The dollar index, which measures the performance of the dollar against six major currencies rose for a fifth consecutive day, reaching 96,133 points, and since the beginning of the week is already rising by more than one percent.

The euro fell to 8 daily low, reaching 1.1144. Since the beginning of the week the single currency lost nearly 1 percent of its value.

Goldman Sachs: If Britain leaves the EU, the pound could fall by 20%

Forex strategists of Goldman Sachs noted that the pound will likely remain vulnerable to June, when it will be hold a referendum on Britain's membership of the European Union. Analysts predict that over this period the currency may retreat with about 3% - 4% against the euro.

However, in case of Brexit, it's not excluded, that EUR/GBP would fall by 20% by June 2017 and even reach parity.

Morgan Stanley: USD/JPY may reach Y116 - Y117 in the next two weeks

Forex strategists from Morgan Stanley predict that in the next two weeks the exchange rate of the US dollar against the yen may rise to between Y116.00 - Y117.00.

According to the experts, driving the upward trend would rise in yields on US bonds. Given the changes in the tax calendar in Japan, the interest of local investors towards assets with attractive yields will increase.

Morgan Stanley's experts, however, remain generally bullish for the Japanese currency and believe that after reaching those levels, USD/JPY will again take down.

The effects of the stimulus policy

Banks fail to expand lending and stimulate the real economy in the desired pace. And there is no reason to be blamed for the low success rate of monetary policy because they should be focused on viable investment projects or lending to creditworthy population. On the contrary, artificial stimulus create the risk of inefficient and excessive lending, as happened with shale oil in the US, or the money goes to the owners of assets as financial instruments.

Shares gained a lot of quantitative easing. The indices in the US and Europe reached record levels, as price growth is related to any new initiative of the central banks. It could be argued how this relationship is only direct, but certainly the incentives of the ECB and the Fed positively influence mood of investors. The direct effect is only on the market for government bonds. Central banks were active buyers of securities and commercial banks and investors followed them because they have no significant alternatives to buying or lending.

We should not blame the banks in Europe that they are not aggressive lending, especially in the years of the European debt crisis when there was too much uncertainty in the financial system and lending to companies. The problem is that the ECB used the same logic again and again, risking further to decrease banks' profits and raise bond prices higher. Bloomberg reported that the government bonds of developed countries with negative yields exceed 7 trillion. This means that governments can spend without worrying about how they will service their debts. At the same time savings will lose their value.

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ECB stimulate financial markets, not banks

The four largest central banks held important meetings on interest rate policy within a week. The ECB and the Bank of Japan signaled that they have reached maximum levels of incentives now. Bank of England and the Federal Reserve kept interest rates unchanged as bankers in the United States risked not to disturb the delicate balance of the financial markets with withdrawal of stimulus.


What are the negative interest?

Negative Interest on commercial bank reserves at the central bank that exceed regulatory requirements amount of minimum reserves. In the US, where interest rates are not negative, commercial banks receive interest payments on reserves. In Eurozone banks must pay because behave more money than necessary. These reserves are increasing and from "quantitative easing" by buying bonds from the ECB. Banks face more interest expense along with the reduction in margins. This explains why bank stocks fell last year. The ECB create money that does not go directly lending and kill bank profits. This policy is likely to continue for a long time, judging by comments from ECB President Mario Draghi.

Nomura: The dollar may gain 7% this year

The jump in the dollar by 25% during the period from June 2014 to January 2016 was the most extreme from the 80s and force Fed to reconsider its strategy on tightening monetary policy, say analysts at Nomura.

Markets continue to expect an increase in rates, although expectations in this regard are weaker than at the end of last year and early this year. Against this background, the dollar will likely continue its growth, but with far less convincing pace.

Main engine of the upward trend will remain interest rate differential and market expectations of further tightening of monetary policy in the US, say from Nomura. It is theoretically possible dollar index to rise by 11% this year, but considering the tone of the statements of Fed is already softer, strategists believe that the likely pace of growth is around 7%.

Technical analysis of the EUR/USD for March 18

EUR/USD

Euro/dollar continued its upward momentum yesterday, topped at 1.1342. As seen on the chart, the price is now struggling around the trendline resistance, suggesting critical technical situation. A clear break above the trend line and consistent move above 1.1342 could trigger further bullish pressure to test 1.1450 - 1.1500. On the downside, 1.1240 - 1.1200 is an important support. A clear break and daily/weekly close below that area could create downward false breakout scenario next week. Overall technical outlook is neutral.

Consultation gives advantage to supporters of the Brexit

The British pound suffered major movements after a survey showed that 49 percent would vote to leave the EU.

Yesterday the British pound suffered major movements after consultation, which results showed that 49% would vote to leave the EU, while 47% intend to vote to remain in the Union. No matter how the markets interpret these results, they created even greater uncertainty about the outcome, which seems to be much more controversial than originally thought. After pressure on short positions that fired pounds from 1.3836 to 1.4437, now again took big money, which resumed its sell-off.

Consolidation for the euro before key Fed meeting

The single currency rose minimal against the dollar before today's meeting of the US Federal Reserve.
The currency pair EUR/USD climbed to 1.1105, this is the fourth consecutive session, closing at 1.11. For the year, the euro rose 2.6% against the US dollar. Investors' expectations for the Fed today are, that the institution will not take changes in interest rates in the US, despite good data on inflation and employment in the country. Although the Fed signaled in December for four raises interest rates this year, economists are of the opinion that there are more than two and that the Fed will likely wait until June or September for this step. The euro fell against the yen to 125.70, but rose against the British pound to 0.7846.