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Weekly review of the EUR / USD pair dated July 16, 2018

Politics periodically recovers and becomes the main driving force in the market. Although politics is nothing more than a continuation of the economy, and everything should be the other way around. However, strangely enough, the market reaction to political events over the past week fully corresponds to the general tendency to strengthen the dollar. So there were no contradictions between the economy and politics.

The first event was the resignation of two ministers in the UK. The ministers for Brexit affairs and foreign affairs resigned. They explained their decision by disagreeing with Theresa May's desire to sign a soft option for secession from the European Union, which implies the preservation of existing trade agreements. In their opinion, this contradicts the will of the people expressed during the referendum. Thus, there was a threat of development of the political crisis and loomed the specter of early parliamentary elections on the horizon. Hence, there was a threat of development of the political crisis and loomed the specter of early parliamentary elections on the horizon. this is only nine months before the final withdrawal of the UK from the European Union. Naturally, such tricks do not add confidence in the future to immediately affect not only the pound but also the single European currency. The question touches both sides of the negotiation process.

The investors did not have time to breathe and rejoice at the fact that early elections in the UK are not expected, as Donald Trump arrived in Europe, who immediately began to behave like an elephant in a china shop. His first destination was Brussels, where he took part in the summit of the heads of state of NATO. Even during the election campaign, Donald Trump was outraged that the NATO allies were not too quick in their own defense, forcing the US to spend too much on military spending, which was included to ensure the security of Europe. Immediately after winning the presidential election, he immediately began to implement one of his campaign promises and began to demand from the Allies to increase military spending to a minimum of 2.0% of GDP set by NATO rules. Long breaking and without much enthusiasm, European allies agreed to raise defense spending to the set minimum, though not immediately, but by 2025.

Apparently, Donald Trump needed time to realize the fact that even if he was re-elected for a second term, he would leave the White House with things in any case to the date indicated by the Europeans. So, only arriving in Brussels, Donald Trump demanded from the European NATO allies to immediately increase military spending to 2.0% of GDP. From such a pressure, many of the European leaders apparently began to quickly change diapers, and investors continued to sell a single European currency.

The fact is that European countries cannot increase defense spending. More precisely, it is possible but only at the expense of raising taxes, which are 1.5 times higher than in the US, and increasing government borrowings, which they already have a lot. They do not know what to do with all this, or by cutting down on the social expenses that they are already financing through debt. Thus, the only thing the Europeans can do is cut it alive, that is, to cut social spending. Naturally, the voters will not understand them and very soon, there will be other politicians in Europe. Yet, the current ones do not really want to part with their warm places. For them, such a turn will become a political suicide. Well, the funniest thing is that such a step will destroy the European social paradise. For them, such a turn will become a political suicide. Well, the funniest thing is that such a step will destroy the European social paradise. and very soon there will be other politicians in Europe, but the current ones do not really want to part with their warm places.

Satisfied with the childish surprise in Brussels, Donald Trump went to London. After the meeting with Theresa May, it occurred to someone that he thought of letting him into the microphone, and the US president immediately shared his thoughts on what would be better if the British prime minister was Boris Johnson, who recently resigned as foreign minister. It sounded so, that it is categorically incomprehensible, he expressed his private opinion or this position of the White House. In any case, investors are again worried about the political crisis in the UK, which may turn into early elections. Naturally, on the eve of the design of the divorce between Britain and Europe, this adds only acute sensations.

As said earlier, political balancing is completely within the economic logic of further strengthening of the dollar. After unequivocal data on the labor market, data on open vacancies came out, the number of which decreased from 6,840 thousand to 6,638 thousand. For a short time, this added concern, but data on applications for unemployment benefits, whose number decreased by 21 thousand, largely reduced fears. In particular, the number of initial applications for unemployment benefits fell from 232 thousand to 214 thousand and repeated from 1,742 thousand to 1,739 thousand. Most investors were pleased with the data on inflation, which even more inspired the market participants. Thus, the growth rates of producer prices accelerated from 3.1% to 3.4%. In turn, the final data on inflation confirmed its growth from 2.8% to 2.9%. So the market participants can still hope.

In Europe, almost nothing came out and only the data on industrial production, whose growth rate accelerated from 1.7% to 2.4% are worthy of attention. But against the backdrop of rising inflation in the US, especially the accelerated growth in producer prices, it inspires hope for a further rise in inflation. Fewer people have worried about the growth of industrial production in Europe.

Perhaps the main event of the week is the meeting between Vladimir Putin and Donald Trump, which will be held on Monday in Helsinki. Considering how much fun Donald Trump has talked about Europe, as well as his desire to drive off European and Chinese producers the American market, he can present another surprise. Not the most joyful statements about Europe but this will negatively affect the mood of investors possibly after the meeting.

Even without a political show, an extremely busy week awaits us. Thus, in the US, a sharp slowdown in the growth rate of retail sales is expected from 5.9% to 3.7%, which will make everyone remember the rise in inflation ahead of the growth of wages. But almost immediately after that, the dollar will be given a chance to improve somewhat its position due to data on industrial production. The growth rate of which can accelerate from 3.5% to 3.9%. So Donald Trump can again scream that he is fulfilling his campaign promise to return production in the US. Also, the total number of applications for unemployment benefits should be reduced by 3 thousand. Although this is not enough, the number of which can be reduced from 1,739 thousand to 1,730 thousand due to repeated applications. The number of initial applications for unemployment benefits, as expected to increase from 214 thousand to 220 thousand. Data on re-applications for unemployment benefits is much more important, as they give an understanding of long-term unemployment. Also, although the number of construction projects started may decrease by 4.0%, the number of building permits issued should increase by 6.0%. In general, the data is expected to be multidirectional, and it is quite difficult to draw a certain conclusion.

However, only inflation data comes out in Europe. Although this is extremely important information, they can not have a significant impact on the market. The fact is that the market has long taken into account the growth of inflation from 1.9% to 2.0%, so the final data is not unexpected. Moreover, after Mario Draghi shifted the emphasis towards the trade war between the US and Europe, inflation is no longer so important for determining the policy of the ECB.

As you can see, any forecasts are difficult to make and if you look at the statistics, the single European currency should rather consolidate at the current values of 1.1700. But Donald Trump clearly will make a variety in the dull schedule of the week and, most likely, will have a negative impact on the single European currency that could to a decrease towards 1.1600.

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