The time for the euro rally has not come yet, and the single currency may well fall to $1.105. Meanwhile, the dollar stabilized at the beginning of the week after ending Friday in the red zone, despite the publication of a strong indicator of GDP growth for the first quarter. Traders were seriously scared by inflation, as it slowed down from 1.8% to 1.3% in annual terms. It is also worth noting that the greenback's reaction to a strong GDP indicator reaffirmed the limited potential of the downward movement of the EUR/USD pair.
Now investors are interested in what conclusion the Fed drew from ambiguous data on the economy. The US regulator's two day meeting starts on Tuesday.
The market doubts that the US economy will be able to further maintain high growth rates. The total contribution of inventories and net exports to GDP growth reached 1.68 percentage points. These are the best results for the last six years. At the same time, the reason for the slow growth in imports was the excessively high activity of US companies in October-December. The reason for the unrest was the topic of new tariffs. The aggravation of the US-China trade conflict will fundamentally change the situation in the second quarter. What has been a growth driver may well become a brake.
The Fed will not change the interest rate. The pause that was taken earlier by the central bank will continue, there is not much to doubt here. However, it may be more interesting. It is expected that the Fed will announce a new instrument capable of keeping the cost of federal lending within tight limits. The main currency pair's volatility on this background will increase.
The publication of the eurozone's GDP for the first quarter is expected on Tuesday. According to analysts, the annual rate remained at the level of the previous quarter - 1.1%. At the same time, there will be a report on unemployment in the bloc in April, which, according to market estimates, also remained unchanged at 7.8%.
At the same time, more and more banking strategists agree that the recovery of the Chinese economy will give impetus to European exports and the economy. For example, Goldman Sachs representatives draw parallels with 2016. At that time, under the influence of a large-scale stimulus, the Chinese economy eurozone was fired with a time lag of three months after the better-than-expected quarterly GDP of China. Such a comparison allows experts to talk about the acceleration of eurozone GDP in the second half of the year to 1.5%. The European currency is waiting for its time, while the dollar is trying to predict the Fed's future steps.
The material has been provided by InstaForex Company - www.instaforex.com