The report on the US labor market is one of the key benchmarks for investors, which can bring both good news and bad. One of which is to strengthen the positive sentiment that dominates after the Fed refuses to continue the growth of rates return panic if it turns out that the labor market and has moved into a contraction phase. While the forecasts are favorable, It is predicted that the number of new jobs will grow by no less than 180 thousand after a failed 20 thousand a month ago despite the fact that the ADP report turned out to be noticeably weaker than expected. A rollback up is more than likely to occur.
At the same time, the dynamics of average wages are even more interesting. Sure growth of 3.4% pushes up inflation expectations, the yield on 5-year bonds Tips gives a chance to see inflation in April, which will somewhat expand the range of opportunities for the Fed.
Events such as the decline in GDP growth rates, the growth of the budget deficit, the inversion of the yield spread, and other unpleasant factors increase tensions and expectations that the recession will come soon. Therefore, wage growth is regarded by the markets as one of the few real possibilities to keep consumer demand high. The decrease in this indicator can dramatically increase panic and cause an outflow of capital from stock markets, as it confirms the course of the world economy to a new economic crisis.
EUR / USD pair
The ECB expressed confidence that the main risks came from external factors including Brexit, protectionism, and a slowdown in China. These risks primarily hit the manufacturing industry, while the services sector continues to go up, moreover, some of the internal growth factors have gradually begun to disappear.
Also, the ECB focuses on some positive factors, such as a positive result of fiscal measures, stabilization in the automotive industry in Germany, increased employment and wages, and favorable financing conditions. It seems that the ECB is quite pleased with the development of events but at the same time leaves the opportunity to expand the use of TLTRO at the next meeting in June.
Anxiety on the ECB may increase due to lower inflation expectations. However, a slowdown in inflation to 0.8% in March is not at all what the regulator needs but fundamental factors make it possible to rely on the temporary nature of this slowdown which will resume in the long run. First of all, we are talking about strong wage growth, which does not turn into consumer price growth. This is a serious problem that may indicate an increase in fears due to the coming recession and decline in consumer activity as a result. In short, people prefer not to spend but to save.
In general, the likelihood of further easing by the ECB remains high. The dynamics of the EUR/USD pair will depend on both external factors while the reduction of global threats will support the euro and plans of the ECB. If there are signs that the ECB is preparing an expansion of the TLTRO at the June meeting, the euro may well fall to 1.10 or lower.
Today, the attention of the markets is directed to the US employment report and before its publication. The euro will be traded in the range of 1.1205/50 and exit can take place in any direction, depending on the report.
GBP / USD pair
Intensive negotiations between Theresa May and Labor leader Corbin did not lead to a concrete result. The parties confined themselves to short statements that the negotiations were productive and did not reveal any specifics. Today the meeting will continue and it is obvious that British politicians have finally realized the seriousness of the current situation. The EU did not blackmail. The belligerent statements of the British side at the preliminary stage did not impress anyone and suddenly turned out that the prospect of withdrawing from the EU without a deal, which became more than real. It would cause the UK economy much more damage than previously thought.
The pound is trading neutral with a slight decrease as every day the prospects for reaching an acceptable solution are reduced. From the resistance level of 1.3120/22, a decline is likely to occur to 1.3062 and further down to 1.3012.
The material has been provided by InstaForex Company - www.instaforex.com