Overview of the foreign exchange market on 11/23/2018

While Americans cut a festive turkey on the occasion of Thanksgiving, events of a truly epic scale unfolded in Europe. The main news was the message that the United Kingdom and the European Union signed, in fact, an agreement of intent regarding the withdrawal of the United Kingdom from a European Union. Although the paper is only a political declaration and does not contain any specifics, the market took this news extremely positively, which is perfectly seen in the example of the pound was growing rapidly. Specifically, the negotiators came to an agreement, which is a roadmap for further action. Now all countries participating in the negotiation process must approve this agreement and begin to agree on specific items and provisions. Supposed to that it will take another twenty one month. But given the content of the signed agreement, the growth of the pound was caused exclusively by emotions. The fact is that there is not a single word about the duty-free trade. Many beautiful words about the need to address issues on Gibraltar and the border between Northern Ireland and Ireland. But not a hint of what the structure of trade relations between Great Britain and the European Union will be and this question is the most important. The economic future of the United Kingdom depends on it. Hence on Sunday, when the agreement is scheduled to be reviewed by the heads of the European Union countries and, apparently, by the British Parliament, anything can be expected. There is a high probability that a uniform scandal on this issue will happen in the British Parliament.


Against this background, the publication of the text of the minutes of the last meeting of the Board of the European Central Bank turned out to be almost unnoticed but it was largely because of him that the single European currency could not take advantage of the positive news from Brexit. The fact is that in the text of the protocol, investors did not see the most important thing, namely, indications of the fate of the quantitative easing program. After all, according to Mario Draghi during the December meeting, a decision should be made to stop the operation of the printing press but there were a lot of words about the risks that cast doubt on further economic growth. We can assume if we recall that Italy is still confronting the European Commission about the budget deficit.


It is obvious that after such high-profile statements on Brexit, many politicians will take a pause to consider their next steps. This is especially true of the British parliamentarians. So all attention to preliminary data on indices of business activity, especially since the forecasts are rather strange. In particular, it is expected that the US business activity index in the manufacturing sector will remain unchanged and in the services sector, it should grow from 54.8 to 54.9. With such forecasts, it is strangely expected that the composite index of business activity will grow from 54.9 to 56.0 given that the share of the services sector in the structure of the American economy is four times more than production. It would be worth waiting for a more modest growth. So there is a high probability that the data will be worse than expected.

Indeed, there are similar data in Europe and for them, forecasts are somewhat different but more real. f the index of business activity in the manufacturing sector in the service sector remains unchanged, it should be reduced from 53.7 to 53.5 and waiting in the end for the reduction of the composite index of business activity from 53.1 to 53.0. Even if the forecasts for the US are not confirmed, the data will most likely still show an increase in the indices, so that the single European currency will have to fall to 1.1375.


A pound clearly suggests a pullback and today, it is extremely likely to occur, especially when many market participants decide to re-read the content of the signed agreement again and do not find in it the most important thing. Thus, it is possible the decline of the pound to 1.2825.


The material has been provided by InstaForex Company - www.instaforex.com