EURUSD: Why so much attention to the inversion of the yield curve?

The euro received some support and strengthened against the US dollar in the first half of the day after the speech of the European Central Bank President Mario Draghi, who again identified the risks associated with a slowdown in global economic growth and the eurozone as a whole.

The ECB President noted that the slowdown in the economic growth of the eurozone does not necessarily foreshadow a serious decline, but the risks have increased in recent months, which leaves uncertainty at a rather high level. Let me remind you that the latest data on the euro area once again disappointed investors, signaling a weak economic growth rate at the beginning of this year.

Draghi also said he expects a gradual return to growth in potential, but the current balance of risks is still shifted in a negative direction. In turn, the ECB is aware of future risks and is ready to respond in the event of further significant deterioration in prospects. The President of the ECB once again drew attention to the fact that he does not have a shortage of tools to carry out the tasks assigned to him.

Given the lack of important fundamental statistics, an interview with Federal Reserve Bank President Dallas Robert Kaplan was published in the first half of the day, in which he stated that the Fed is too early to think about lowering rates. As noted in the morning forecast, traders and investors reacted positively to the quotations of futures on the Fed's rates, where the probability of their decline by the end of the year was estimated at 66% versus 72% at the end of last week.

Kaplan also pointed out that weighty bases are required to lower interest rates. And although the current inversion of the yield curve is one of them, the difference in profitability should be more significant and long lasting.

According to the representative of the Fed, to prove its constancy, the inversion of the yield curve should last for months, not weeks.

Under the inversion of the yield curve is meant the case when the yield of long-term treasury bonds becomes lower than the yield of short-term ones. Let me remind you that at the moment the yield on 10-year Treasury bonds fell below the yield on three-month bonds, and this market has not seen since August 2007. Are these the first signs of an impending crisis?

Closer to the afternoon, data on the US foreign trade deficit came out, which supported the US dollar and returned to the market the EURUSD pair sellers.

According to the report, the deficit fell sharply in January this year due to a significant increase in exports, while imports fell. This day can be recorded in the "piggy bank" of Donald Trump, who for a long time led the war, then the negotiations on trade with China and is trying to straighten the balance as quickly as possible.


According to the US Department of Commerce, the deficit of foreign trade in goods and services of the United States in January 2019 decreased by 15% compared with December and amounted to 51.15 billion dollars. Economists had forecast a deficit of $ 57 billion. As I noted above, exports in January rose immediately by 0.9% compared with December, to $ 207.34 billion, while imports fell by 2.6%, $ 258.49 billion.

As for the technical picture of the EURUSD pair, it remained unchanged. As long as trading will be above support at 1.1250, the demand for euro will remain, but its breakdown will lead to a new wave of decline in risky assets, with the renewal of 1.1220 and 1.1170 lows. In the event of a persistent demand for the euro, sellers of risky assets will manifest themselves after the update of resistance 1.1290 and from a larger high of 1.1325.

The material has been provided by InstaForex Company -