EarnForex.com Monthly Newsletter
| | | | Hello traders! Welcome to the latest issue of EarnForex.com newsletter — June 2019. In this issue of EarnForex.com newsletter, I will remind you about the most important Forex-related events of the last month and will also show you the list of the site's latest updates. | | EDITORIAL: Will There Be Recession in the USA Soon? 📉 | | If one macroeconomic gauge to be trusted, the United States are on the brink of recession. If we look at the difference between the yields on short-term US Treasury bills and long-term US Treasury notes, which is called spread, the 3-month bills purchased on May 13 earned +0.01% per annum compared to the 10-year notes purchased on the same day. This usually means that the future interest rates are going to be lower than they are now. And the likely reason for them to be lower is that the Federal Reserve will need to cut the federal funds rate. And this is usually done to help the economy in a recession. But how likely is a recession in 2019? According to experts surveyed by WSJ, it is not likely at all. The recession probability in 2019 stands at less than 3%, however, the probability of a recession in 2020 and 2021 is at about 35% and 50% respectively. Recession is usually defined as negative change of the country's GDP during two consecutive quarters. NBER defines recession differently, but it does not change its essence much. The US economy switching to a downturn would cause the Fed to cut interest rates, which would reduce the attractiveness of the US dollar compared to other currencies. This would be a long-term bearish signal for the USD. At the same time, the US dollar might experience bursts of short-term power against currencies that are considered risky — this could happen when US recession spills over to the rest of the world. All these developments provide lots of trading opportunities both for long-term and short-term FX traders. This is why, it is worthwhile to follow the likelihood of the US recession. Still, it is important to understand that apart from the sentiment indicators of the US bond market and expert opinion, there are no fundamental indicators pointing at an approaching economic decline. Solid employment situation and leading indicators do not hint at any significant slowdown. There is also no obvious imbalance in the financial system that could create a considerable crisis to affect the entire US economy. It does not mean that the United States will never get into the next recession, but for now, it seems more productive to be pursuing other trading opportunities than to be waiting for the economy to crash. | | Overview of the major currency pairs' performance in May | | EUR/USD — declined in a downtrend with strong corrective waves. It was at the maximum at 1.1264 on May 1, at its minimum at 1.1106 on May 23, finishing the month at 1.1167. GBP/USD — dropped rapidly. The highest monthly rate was at 1.3176 on May 3, while the lowest — at 1.2558 on May 31. GBP/USD finished May trading at 1.2628. USD/JPY — was in a very strong downtrend with an attempt for a correction in the middle of the month. The pair rose to as high as 111.68 on May 3, reaching a bottom at 108.27 on May 31 and closing the month with the 108.31 rate. AUD/USD — declined during the first half of the month but then went sideways. The monthly high was at 0.7060 on May 1, the monthly low — at 0.6864 on May 17. Trading ended at 0.6933 for this currency pair. USD/CAD — moved sideways, then dipped a little, and then continued upwards. The maximum level for this pair was 1.3564 on May 31, while the minimum — 1.3357 on May 22. The month's trading ended at 1.3519 for USD/CAD. | | Fundamental background of the past month | | Trade wars was the main theme on markets in May. As a result, the US dollar gained on riskier currencies and fell versus safer ones. After seemingly good progress in trade negotiations between the United States and China, markets were shocked to hear an announcement that the USA are going to implement tariffs on Chinese goods after all, while US President Donald Trump said that the USA are not ready for a deal yet. Ban of Chinese tech giant Huawei from using Google services stocked fears further. Meanwhile, China responded with threats of limiting supply of rare earth metals to the United States, which is detrimental to US high-tech industry. China was not the only target of US tariffs as Mexico surprisingly came under fire as well. Pressure from Trump and soft macroeconomic data on the Federal Reserve to lower interest rates was one of the negative factors for the greenback that affected the currency during the past month and can continue to hurt it in the future. Incredibly good US employment data did not have any lasting effect on markets. The euro behaved in a similar manner, gaining on riskier commodity currencies but tumbling versus safe haven currencies, including the US dollar. While there were some positive eurozone reports released in May, GDP readings for Germany and the whole eurozone came out below expectations. The elections in the European Parliament resulted in victory of pro-EU forces, but the euro failed to profit from that, driven down by risk aversion caused by trade wars. May was terrible for the Great Britain pound, which turned out to be the weakest major currency during the month, falling even against extremely vulnerable commodity currencies. The main hurdle for the currency remained the Brexit as no trade deal between the United Kingdom and the European Union was in sight. Things became even more uncertain after Prime Minister Theresa May was pressed to resign. The EU elections did not bring relief to the currency either as both Britain's major partied faced a defeat, suggesting that Britons were deeply dissatisfied with how they were handing the departure from the EU. The neutral monetary policy stance of the Bank of England did little to help the sterling. Unsurprisingly, the Japanese yen thrived in the environment of risk aversion, emerging as the strongest major currency on the Forex market in May, beating even its safe haven counterpart Swiss franc. The Bank of Japan said that reducing interest rates further may cause more harm than good to the economy, meaning that the central bank is unlikely to perform more cuts in the future. While the Swiss franc started May somewhat soft due to lackluster domestic macroeconomic data, the Swissie managed to end the month as the second strongest major currency after the yen thanks to risk aversion. Risk aversion and falling prices for crude oil made the Canadian dollar soft in May, overshadowing a positive surprise from Canada's gross domestic product. Stellar employment data and the potential ratification of the USMCA deal also failed to support the currency. While both Australian and New Zealand dollars suffered from risk aversion, their respective central banks also hurt the currency. The Reserve Bank of New Zealand cut interest rates. And while the Reserve Bank of Australia kept rates unchanged, the downgrade of the economic forecast and prospects for a cut in the future were detrimental to the Aussie nonetheless. The positive surprise from the Australian federal election was unable to bolster the Australian currency for long. Gold managed to gain in May, benefiting from risk aversion, after three consecutive months of decline. | | Interest rate changes in May | | Czech Republic | 1.75% | +0.25% | 2.00% | | Iceland | 4.50% | -0.50% | 4.00% | | Malaysia | 3.25% | -0.25% | 3.00% | | New Zealand | 1.75% | -0.25% | 1.50% | You can see the current interest rates by the world's central banks in our interest rates table. | | Two new Forex brokers have been added to EarnForex.com since the last issue of the newsletter: - GMO Trading — a classic CySEC-regulated MT4 Forex broker with $10 minimum account size and a multitude of trading instruments to operate in.
- ACY Securities — a regulated ECN broker from Australia with 1:500 leverage on Forex and a focus on both currency and cryptocurrency trading. They offer real accounts with MetaTrader 4 and MetaTrader 5 platforms.
You can always view our full list of Forex brokers. | | Top five Forex brokers of the last month | | There was the following important Forex industry news since the last issue of the newsletter: - Invigorated by the cryptocurrency rally, Forex brokers continued ditching traditional electronic payment systems in favor of cryptocurrencies as payment options with many companies also introducing crypto trading, while some brokers turned to expanding their list of crypto trading instruments beyond the traditional BTC/USD, LTC/USD, and ETH/USD.
- An updated study of the losing traders percentage numbers for ESMA-regulated broker reveals that retail Forex market participants were doing somewhat better during the 12 months through May than during the same period through January 2019.
| | Until the next newsletter issue! | | That is all for the June issue of the EarnForex.com newsletter. If you have questions, comments or just want to see something else in the next monthly issue, please let us know. | | |
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