Weekly review of the foreign exchange market from July 30, 2018

The dollar resumed its growth, and most clearly this was seen in the example of the single European currency. As for the single European currency, once again everything revolved around the customs policy of Donald Trump. At the very beginning of the week, a meeting was held between Donald Trump and Jean-Claude Juncker, after which the euro was able to improve its position by pulling a pound along with it. This meeting was preceded by another statement of the US President with the proposal of mutual abolition of customs duties, barriers and subsidies. Donald Trump also added that customs duties are good, because after their introduction, everyone is ready to sit down at the negotiating table, and on his terms. The very proposal of the owner of the jump on the mutual abolition of customs duties, barriers and subsidies is disadvantageous for Europe. They are ready to cancel duties at least now, but everything else has long been used by the eurozone to protect their own market from foreign producers and, to be honest, seriously contradicts the declared principles of free trade. So the proposal is clearly disadvantageous for Europe. As soon as the meeting ended, the media reported that Donald Trump and Jean-Claude Juncker had reached an agreement. But the details became known only after the ECB meeting on monetary policy. As it turned out, the United States and Europe have agreed not to introduce new customs duties and to negotiate the settlement of the trade issue. In other words, nothing new has happened, as negotiations on this issue have not stopped since Donald Trump first announced his intention to introduce duties on certain goods. And such wording as "yet", does not give any guarantees that tomorrow the US will not impose new duties.

Given that the details of the meeting of Donald Trump and Jean-Claude Juncker became known after the meeting of the ECB's meeting on the monetary policy, all attention was focused on the press conference of the head of the ECB. He obviously had to already know what exactly the meeting between the US President and the head of the European Commission ended. It is worth recalling that earlier the ECB explained its endless extension of the program of quantitative easing, low rates of economic growth and inflation. But after the previous meeting, following the results of which the quantitative easing program was extended for the third time, Mario Draghi did not say anything about inflation or economic growth rates. Then he referred to the risks caused by the trade war. Once Donald Trump and Jean-Claude Juncker came to an agreement, the rhetoric of the ECB head had to change. However, Mario Draghi again said nothing about inflation and GDP growth rates, and only noted that the risks caused by the trade war, somewhat decreased. From the head of the ECB waited for statements that under no circumstances the operation of the quantitative easing program will not be prolonged, but his words rather indicate the opposite.

If we forget about the geopolitics and fears of central banks and look at the statistics, we will see that the American economy is feeling well. The economic growth rate, albeit according to preliminary estimates, accelerated from 2.6% to 2.8%, which is the best result in the last few years. Also, the volume of orders for durable goods increased by 1.0%. But to be honest, that's where the good news from the US ends. Thus, the sale of housing in the secondary market fell by 0.6%, and in the primary market they fell by 5.3%. Also, the total number of applications for unemployment benefits increased by 1 thousand.

If you look at the eurozone, in continental Europe there was no reason for the growth or decline of the single European currency, as the growth rate of consumer lending remained unchanged. There were no other significant data in Europe. But the pound had a reason for joy, which explains its much greater stability compared to other currencies. The fact is that the number of approved mortgage applications has increased from 39,528 to 40,541. This is quite significant, given the huge importance of the real estate market to determine the investment attractiveness of the UK.

This week will be marked by the publication of the report of the US Department of Labor, but it will happen at the very end. And before that, we are waiting for a lot of interesting things. We can say that the most boring event will be the meeting of the Federal Commission for open market operations, as it is clear that the refinancing rate will not increase now, as it is planned for the end of the year. Representatives of the Fed have already assured everyone that they do not intend to abandon their plans. Data on personal income and expenditure will also not make any difference, as both income and expenditure should grow by 0.4%. Their comparable growth has no effect on the market. But the sale of vehicles may be reduced from 17.5 million to 17.3 million, which will have a negative impact on the dollar. And, according to ADP, employment could grow by 175 thousand, which is less than 177 thousand in the previous period. The total number of applications for unemployment benefits should be reduced by 4 thousand.as for the report of the US Department of labor, it is expected to see a reduction in the unemployment rate from 4.0% to 3.9%. The growth rate of average hourly wages should remain unchanged, but 195 thousand new jobs can be created outside agriculture, which is slightly less than 213 thousand a month earlier. However, even such a number of new jobs completely satisfies all market needs, and the unemployment rate itself should decrease, so the expectations are quite optimistic.

Frankly speaking, there is practically nothing to answer Europe. Of course, the unemployment rate should fall, but from 8.4% to 8.3%, which against the background of the US unemployment rate looks just awful. Of course, the rate of growth of producer prices can accelerate from 3.0% to 3.5%, but if we consider that the inflation itself should remain unchanged, then it can impress few people. Worst of all, with stable inflation, retail sales growth is expected to slow from 1.4% to 1.3%. Also, preliminary data on GDP should show a slowdown in economic growth from 2.5% to 2.2%. In other words, everything points to the decline of the single European currency, and it should finish the week at the level of 1,1600. However, the Bank of England may intervene, and if it succeeds, the pound will pull the single European currency, which will grow to 1,1750.

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The fact is that in the UK there will be a meeting of the Bank of England's policy board on monetary policy, and now it is predicted that the refinancing rate will increase from 0.5% to 0.75%. If this happens, it can be compared with the explosion of an atomic bomb. However, such forecasts look extremely doubtful, since almost all representatives of the Bank of England not only stated that the increase in the refinancing rate is still untimely, but also hinted at the possibility of resuming the program of quantitative easing. It is unlikely that the members of the Board of the Bank of England in less than a month have radically changed their views. It should be noted that the data on the lending market has already been released, and the volume of consumer lending remained almost unchanged, and the number of approved applications for mortgages increased from 64 684 to 65 619. But the Bank of England is guided not only by this data. More precisely, they are not so important for him. Nevertheless, the Bank of England is able to surprise, and if the refinancing rate is increased, the pound will rise to 1.3200. Otherwise, he will complete the week at 1.3050.

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