On Wednesday, the first meeting of the US Federal Reserve will be held this year, and, unlike the practice of previous years, it will be accompanied by a press conference, the Fed intends to make all its meetings "live". Markets are waiting for a possible change in the wording, which will make a conclusion about how much the Fed is prepared to insist on two increases in the current year, scheduled for the December meeting.
At the moment, as follows from the data on futures for the rate on CME, investors do not believe in an increase either in January or in March or even in December.
The dollar fell on Friday across the entire spectrum of the market, the reason was the rumors that the Fed is considering revising the target for the level of balance upwards, which will be an indirect sign of the upcoming recession. In this regard, the Powell press conference after the meeting on Wednesday will become a key event not only of the beginning of the week but will obviously set the dynamics of the currency markets for several weeks in advance.
On January 26, an agreement was finally reached on a temporary shutdown of the Shutdown, funding for the work of the government will be resumed until February 15, during which time Trump hopes to reach an agreement with the Congress on financing the wall on the border with Mexico. If this does not happen, the government's work will again be paralyzed, but this will happen against the background of the March 1 date, when it will be necessary to revisit the issue of the public debt ceiling in recent years. Domestic political split in the United States will affect the pace of economic growth, which, in turn, will increase the pressure on the dollar.
Eurozone
The Ifo business climate index in Germany fell in January from 101p to 99.1p, the lowest value since February 2016, business expectations at the lowest level since 2012. There are no signs of stabilization of the situation yet, and the slowdown concerns not only the manufacturing sector but in the services sector, the slowdown rate is quite comparable.
Despite the fact that the ECB had to admit the growth of risks, the general position of the Central Bank remains unchanged. The regulator prefers to consider these risks as temporary. In his opinion, trade tensions will decrease, the dynamics in the Chinese economy will recover, and the weakness of Germany and France will end as soon as the new standards for the German auto industry are adjusted and the movement of "yellow vests" is completed.
So far, the ECB has not made any statements that the rates will remain at the current level until 2020, and the markets are waiting, if not in the summer, then at least by the end of the year, one increase. In conjunction with the change in expectations for the Fed in the direction of mitigating such an alignment ensures the stability of the euro.
This week, important macroeconomic data from the eurozone is not expected, the dynamics of EUR / USD will be provided by the prospects for ending the US shutdown and developing the situation around Brexit in the UK. On Monday, EUR / USD has some upside potential, resistance of 1.1460 / 70, an attempt to reach this level during the day is very likely.
Great Britain
January 29 will be a vote on an alternative plan for Brexit in the British Parliament. The pound rose significantly on Friday amid the news that the plan would be supported by the DUP party with some reservations, which sharply increased the chances of a favorable outcome of the vote. A legally binding vote is not, however, the procedure allows to choose from a number of amendments those that the parliament will insist on, one of them implies a request to the EU to extend the validity of Article 50.
The pound will win back a positive, so purchases on pullbacks look quite reasonable. This week, the publication of important macroeconomic data is not expected, players will look for a minimum positive for the next purchases. GBP / USD has overcome the first of the resistances of 1.3170, the next in turn is 1.3257 and then 1.3297, the chances are high, the markets are confident that the situation is developing according to a favorable scenario.
The material has been provided by InstaForex Company - www.instaforex.com