The ultra-strong Euro has rattled many assets

Tuesday’s trading on exchanges in the majority of regions, including the Asia-Pacific and Eurozone, was in the red: although the initial impulse in the US dollar’s decline was overcome at the beginning of the week, a new shock awaited investors – the collapse of the Republicans’ health care reform legislation. The Eurozone’s relatively flat currency was a negative factor for the US dollar, which fell Tuesday.

The EUR/USD pair broke through high levels at around 1.156, returning investors to levels last seen in the spring of 2016 and almost negating the ECB’s actions of last year. Naturally, a correction must follow, but Tuesday’s target indicators during the decline shifted toward 1.1485 - 1.1455, and it will be a hard-fought battle to reach 1.15.

The Asia-Pacific region’s stock indexes mostly fell on the weakening of the dollar: the USD/JPY pair dropped below 112, although not for long. But this was enough for Japan’s Nikkei 225 to sag 120 points, losing 0.59% of its value. Australia’s S&P/ASX 200 fell even more, losing 1.18%. The decline most likely will not continue on Wednesday, since traders will take a cue from it and also close short positions, pushing assets toward local growth.

The ultra-strong European currency resulted in the fall of the majority of major European indexes: Germany’s DAX dropped by 1.45%, the Euro Stoxx 50 by 1.25%, and France’s CAC 40 by 0.95%. On Wednesday, investors will most likely decide to take their profit, halting Tuesday’s fall, but the indexes will need some time to return to previous levels.

An interesting situation is developing in Great Britain: after CPI data came out, it became clear that inflation is waning, since the index fell from 2.9% to 2.6%. Investors took this extremely negatively, which resulted in active sales on the FTSE 100 and then in sales of the British pound. The GPD/USD pair returned to the 1.30 mark which, by the way, somewhat slowed the fall of Britain’s stock indexes in the second half of the day. Great Britain will most likely have second thoughts about changing the current interest rate but, if the US dollar’s decline continues, the pound sterling may recover Tuesday’s losses as early as Wednesday.

Yuri Prokudin, Olymp Trade

Olymp Trade Review