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Yesterday was incredibly interesting and intense but most importantly, extremely diverse in terms of the behavior of certain currencies. For example, the single European currency behaved quite academically, strictly obeying the logic of published macroeconomic data. European statistics itself did not surprise anyone since the second estimate of GDP completely coincided with the first, showing a slowdown once again in economic growth from 1.6% to 1.2%.
However, American statistics greatly disappointed market participants. In particular, inflation data released on Wednesday inspired hope that the slowdown in producer prices would not be so strong, but in fact, they slowed down from 2.5% to 2.0%. Although, they predicted a slowdown to 2.1%. Also, much worse were data on applications for unemployment benefits came out than forecasts. Initially, it was predicted that their total number would decrease by 6 thousand, but in reality, it increased by 41 thousand. It is not surprising that the single European currency was able to strengthen its position yesterday. The number of initial applications increased by 4 thousand instead of reducing by 10 thousand while the number of repeated applications for unemployment benefits did not increase by 4 thousand but by 37 thousand.
Well, the worst thing is that the growth rate of retail sales dropped down from 4.1% to 2.3% and in combination with a slowdown in inflation, this is just a fusion mixt. However, waiting for the acceleration of growth to 4.5%, the next macroeconomic data clearly indicate that the Federal Reserve will seriously think about easing monetary policy.
But with the pound, everything is a little different due to another fuss around Brexit. The British Parliament, also referred to as the House of Commons, rejected legislative amendments proposed by Theresa May to prevent the so-called Backstop. The fact is that parliamentarians flatly refuse to accept any agreement that does not regulate trade issues, especially related to the border between Ireland and Northern Ireland. After all, if Brexit takes place in the form as spelled out in the current version of the agreement adopted by Europe, then Northern Ireland will find itself in a special position very different from the rest of Great Britain. The most important thing here is that in this case, all trade and financial flows between the UK and the European Union will pass through Northern Ireland. As a result, huge profits will settle there.
According to the fair discussion of parliamentarians, this creates the ground for a new wave of separatism and threatens the territorial integrity of the United Kingdom. It is not surprising that the House of Commons blocks any agreement that allows such a possibility. At the same time, the European Union refuses to discuss any other options besides the one that already exists. Thus, hard Brexit is becoming more real, which causes a further decline of the pound.
Today, the industrial production data is released in the United States, which is far from optimistic even without yesterday's failed statistics. Indeed, the growth rate of industrial production should slow down from 4.0% to 3.6% and there is every reason to believe that the slowdown will be even more significant. This is indicated by the slowed in production orders and the continued growth in inventories. Although a decline was evident from yesterday's data, this reduction is not enough to cover the previous growth. Given that no data is coming out in Europe, it's worth waiting for a negative reaction specifically for the dollar and the single European currency can rise to 1.1300.
There is a great opportunity for a long-awaited correction. Since apart from industrial production in the United States, the United Kingdom itself predicts an acceleration in retail sales growth from 3.0% to 3.4%. The recent slowdown in inflation will be forgotten as sales grow and will give the pound more confidence. Thus, it is worth waiting for the gradual growth of the pound to 1.2875.
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