Overview of the foreign exchange market on 01/25/2019

With a single European currency, everything is relatively clear, and its decline was fully justified. Indeed, as expected, the European Central Bank left the refinancing rate unchanged, and the most interesting thing happened already during the press conference of Mario Draghi. Initially, the head of the regulator said that the rates would remain unchanged until the end of the summer, but in the course of answering the questions, he made a reservation that "traders have already laid the first increase in quotes at the beginning of 2020". In other words, Mario Draghi stated in almost direct text that the refinancing rate would be raised only in a year. Such a reservation is not accidental, since inflation in Europe has gone down, and so far there are no guarantees that it will return to the mark of 2.0%. And even if it returns, it is highly likely that, as before, it will not last long there.


But even without Mario Draghi and his European Central Bank, the single European currency had enough reasons for weakening. The fact is that the preliminary data on business activity indices did not show a growth, as expected, but a decrease. Thus, the business activity index in the manufacturing sector decreased from 51.4 to 50.5, and in the services sector from 51.2 to 50.8, and, as a result, the composite index decreased from 51.1 to 50.7. In turn, in the United States, where it was expected that preliminary data on business indices would show a decline, they showed a slightly different result. In particular, the business activity index in the service sector declined not as much as expected, just from 54.4 to 54.2. But the index of business activity in the manufacturing sector presented a big surprise, as it increased from 53.8 to 54.9. However, predicted its decline to 53.5. As a result, the composite index of business activity rose from 54.4 to 54.5. Also, data on applications for unemployment benefits were slightly better than expected, since their total number decreased by 27 thousand, and did not increase by 6 thousand, as expected.

From the overall picture stands out a pound , which at the end of the day began to grow significantly. And as it is easy to guess, this is connected with Brexit, and more precisely with the statements made by the Minister of Commerce. George Hollingbury admitted that the UK is in active negotiations with all countries of the European Union, and soon a trade agreement will be concluded with each of them. Of course, he did not disclose the details of these very agreements, especially regarding customs duties and trade quotas, but the fact that Great Britain would leave the European hostel, having a clear picture of how trade interaction with Europe would be carried out, greatly pleased investors. And this reaction itself clearly indicates that it is the trade that is the most important issue in this whole story.


Today, there is no data either in the US or in Europe, so the market will be able to rectify the imbalances that emerged from yesterday's results. The decline in the single European currency was quite significant and it is clearly oversold. Therefore, it's worth waiting for its growth to 1.1350.


In the UK, the same will be published data on approved mortgage loans in which the number may be 39,000 against 39,403 in the previous month. And given the impressive growth of the pound against the backdrop of statements by the Minister of Commerce, almost certainly the mortgage data, and the real estate market is extremely important for determining the investment attractiveness of the United Kingdom. Thus, this will be the reason for reducing the pound. Most likely, the pound will drop to 1.3050.


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