Weekly review of the foreign exchange market from 02/18/2019

The dollar continued to strengthen, although not as active as before. If you look at the US statistics, the question rather arises as to why the dollar grew at all. Consequently, inflation slowed down from 1.9% to 1.6% and the growth rate of producer prices from 2.5% to 2.0%. Aside from the dropped in inflation, the growth rate of retail sales also slowed down from 4.1% to 2.3%, which is generally a dangerous mixture. Indeed and industrial production did not remain aloof from the general case and slowed down its growth from 4.1% to 3.8%. Moreover, the number of applications for unemployment benefits increased by 41 thousand. In particular, the number of initial applications increased by 4 thousand and repeated by 37 thousand. Judging by such statistics, it feels like Donald Trump has already made America great and that's enough. Everyone looked at this miracle and now, America can cease to be great again. However, despite all of these, there was a noticeable weakening of the dollar only on Friday.


If you look at the European statistics, which practically did not exist, the European Union has nothing to be proud of. After all, the industrial production accelerated its decline to 4.2% after its previous decline of 3.0%. Not only can a similar result is unlikely to please anyone, but these data also came out on the same day as inflation in the United States. Of course, it declined but not as much as expected, which at that time was perceived rather positively.

Yet, the British statistics until the end of the week wore purely negative. Thus, industrial production has slightly improved its position after a recent decline by 1.3%, which is currently decreasing by only 0.9%. However, the GDP growth rate slowed down from 1.6% to 1.3%, whereas they expected a decline to 1.4%. Inflation slowed from 1.9% to 1.6%, which is also not particularly pleasing. Moreover, the House of Commons once again throttled water with this Brexit since it rejected Theresa May's legislative initiative regarding Backstop. The fact is that the current version of the agreement with the European Union, which the Prime Minister is trying to push through, implies that as long as the parties do not agree on trade issues, everything will remain at the border between Northern Ireland and Ireland. That is, there will be a duty-free movement of goods.


In other words, Northern Ireland as part of the United Kingdom will remain as if within the European Union. British parliamentarians are confident that not only this will lead to serious losses for British business but it also threatens the territorial integrity of the United Kingdom. It turns out that the parties continue to tread on all the same issues, especially since Europe refuses to even discuss any changes to the current version of the agreement. Moreover, the Prime Minister of the Netherlands said that the hard Brexit is very beneficial to his country, as international companies transfer their offices from London to the continent. From his words, it follows that even after Brexit, Europe does not intend to discuss with the UK, much less sign any additions to the agreement regarding economic cooperation.


For this week, there is quite a bit of data in the United States but this is not so important, given that the minutes of the meeting of the Federal Commission on Open Market Operations will be published. Most likely, it will reflect the concerns of the Federal Reserve System about the slowdown in economic growth, which intersects with the macroeconomic statistics released last week. It is also quite possible that the text of the protocol will reflect ideas about possible options for easing monetary policy. All this will have a negative impact on the dollar and prediction on preliminary data of business indices is quite interesting. On one hand, the composite index should fall from 54.4 to 55.1, which is very good. However, the business activity index in the services sector should remain unchanged, while in industry, it is projected to decrease from 54.9 to 54.7. It is completely incomprehensible how this would increase the composite index of business activity. Yet, closer to the end of the week, the dollar may receive support from data on orders for durable goods as it is expected to grow by 1.7%. Also, sales of housing in the secondary market should increase by 0.9%.

Additionally, there is preliminary data on business activity indices in Europe while the forecasts are rather strange in the United States. Indices in the service industry should remain unchanged. However, it is projected that the composite index of business activity will grow from 51.0 to 51.1. The final data on inflation will also be published, which should confirm its decline from 1.6% to 1.4%. Thus, the single European currency will depend on US statistics and the content of the minutes of the meeting of the Federal Commission on Open Market Operations. Given that the content of the protocol is much more important than any data that will be published during the week along with the negative expectations on it, it is worth waiting for the single European currency to rise to 1.1400.


The pound also has every chance to grow not only due to the content of the text of the minutes of the Federal Commission meeting on Open Market Operations, but also thanks to the labor market data. The unemployment rate itself should remain unchanged. However, wage growth may accelerate taking into account premiums from 3.4% to 3.5% and without them would turn to 3.4% from 3.3%. Also, the number of applications for unemployment benefits could reach 2.4 thousand against 20.8 thousand in the previous month. Thus, the pound has every chance to grow to 1.3100.

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