When US dollar has hard times

Last week was super active: Draghi, McCafferty from the Bank of England, RBA protocols, scandalous Dudley from FRS, and NFP with a new surprise. All the willing had enough news, and speculators had a lot of opportunities to earn money. Draghi, again, elaborated on the theme of improvement of the situation in Europe, in particular, he touched on the reduction of inflation and was quite persuasive. There are fewer and fewer doubts that we can expect significant easing of the monetary and credit policy at the following ECB meeting.

In 2015, China's economic growth was 6.9% - it showed the lowest rate for the last 25 years, currency reserves in January reduced by $99.5 bln. Before the Lunar New Year holidays, NBC poured 330 bln (USD 50 bln) of yuan into the country's financial system - 4 times more than in 2015. However, analysts warned again: you cannot trust Chinese statistics, which is practically never based on real information and pursues purely political goals. Moreover, because of limited information, this information cannot be properly verified. It is most likely that the real growth is much less; that is confirmed by the fall of the Chinese stock market, reduction of production volumes, regular liquidity injections, and examples of state "market violence" by the Chinese government: persecution of market speculators, shutdown of brokers, and control over capital movement.

US dollar has hard time for the whole week. PMI indexes and Dudley's speech were insistent getting on the "market's" nerves with its dynamics, killing every hope for rate increase in March. If you read the NY Fed Head's statement between the lines, the address to the period of December is not accidental (interest rate was increased), and FOMC must check once again if the financial conditions reflect the real economic situation. It is one more reason to notice US economy's decline if someone was too stubborn to see it in the publication of poor services ISM and disastrous industrial orders. As it was expected, Nonfarm Payroll data came out as poor, although they were controversial. The current situation is close to reaching full-time employment (4.9% - is the minimum unemployment value since 2008), and so the acceleration of salary growth can become the required stimulus for the growth of prices. However, we can make several conclusions from this part of the report:

• the main part of job seekers began to look for jobs and it was reflected in the statistics;
• people cannot survive on allowances and coupons, and therefore, they look for any job, not necessarily of high quality;
• those who already have jobs are looking for better ones and the market already offers them;
• the problem of the labor market is not in the lack of labor force but rather in its oversupply, moreover, it is unqualified.

By common logic, that is the reason for FRS to shift rate increase to later periods. Now, there are all the grounds for the beginning of massive decrease on the American stock market. The reserves of the US Treasury fell to $312 bln, and if the US switched to fiscal stimulation of the economy, those reserves will go towards compensation for the deficit months - February and March, then it will be very difficult to support demand for bonds. The market is waiting for Yellen's speech on Wednesday and Thursday in order to determine mid-term trends with regard to US dollar. FRS is obviously distressed by the Chinese developments, however, everything depends on the general tone: if Yellen supports Dudley's careful position, dollar will continue its decline; however, if she, as always, shows confident optimism regarding the future of the US economy (most likely, this is what is going to happen) - US dollar will go up.

We should also mention the following:

1. Fears regarding Deutsche Bank have been growing. According to the data for 2015, the bank had a record-breaking losses of €6.8 bln, which is worse than during the 2008 financial crisis. The banks' open positions in derivative financial instruments were $75 trn, which is 20 times greater than German GDP. Operations with counterparties have been deteriorating, and soon, the bank may have problems with raising of capital, as well as the borrowing costs are growing and there is a growth of credit and default swap costs. The price of default insurance has grown by 60%. The specter of Lehman Brothers is on the horizon.
2. The noise regarding the British referendum on UK's pullout of the EU is becoming louder and louder, the mass media has already taken up the term Brexit. The Bank of England left the discount rate and APF program on the previous level, but the voting structure has changed - the last hawk, Ian McCafferty has given up the idea of rate increase.
3. We can see a dramatic yield increase of European and decline of American bonds. The greatest changes occurred with regard to the yield of Portuguese and Greek bonds - growth by 0.25% and 0.61%, respectively. After the publication of information that the negotiations between Greece and IMF creditors were suspended, Greek shares fell to the lowest level since 1990.
4. Moody ratings agency lowered the rating of Western Australia, one of the largest global iron ore producers. Long-term issuer and senior unsecured debt ratings of the Western Australian Treasury Corp., which issues debt on behalf of the state of Western Australia and state-owned corporations have been lowered from Aa1 to Aa2.
5. If yen continues to grow, we can expect a verbal intervention by the Bank of Japan any time. The rate of 115.00 has long been considered as a "sick" level, and the bank is hardly satisfied with the fact that after the transfer to negative rates, the national currency has changed by 300 points.
6. Saudi Arabia has made a decision regarding the military support of the Syrian conflict. We should wait for a response from the oil market.

USD/JPY: mid-term risk levels: 118.34/115.60/114.90/113.10/112.00. Strong intraday resistance: 115.88/116.20. If it stays there, then we have a high probability of fall to the target range of 115.00-114.00. In case of consolidation under 114.60, a fall to level 112.00 will be possible, but an above intervention will bring the pair back to the levels, at least, 116.50/118.00.

EUR/USD: everyone has expected a shot in one or the other direction; now, an important mark from the point of view of mid-term risks is 1.1102, neutral zone: 1.0977/1.1172. Movement downward is protected by option interests at levels 1.1010/1.0900. The nearest resistance zones (Call options): 1.1200/1.1400, 1.1170/1.1210, 1.1330/1.1440.