21.05.201902:05 Forex Analysis & Reviews: The Fed can knock down the dollar (weekly review of EUR/USD and GBP/USD from 05.20.2019)

Last week was much more successful for the dollar than the previous one, especially if you look at the single European currency, which seems to have tried to strengthen its position, but again started to weaken. Frankly, the reasons for dollar's success is largely due to the fact that the UK has once again remembered its threefold damn Brexit. Theresa May's so-called partners in the Conservative Party were the first to open their mouths and demanded that she immediately present an action plan for her resignation, which in itself sounds comical, and also submit the final version of the "divorce agreement" with the European Union to the court of the House of Commons as soon as possible. Their goal is very simple - to leave the EU as soon as possible. Which they can even without a deal, if it does not suit them. It also seems that no one doubts the fact that there will be no deal. After all, Theresa May spent almost two months negotiating with Jeremy Corbyn, but she never achieved anything. According to the Labour party, the prime minister does not intend to take their opinions into account, so as soon as the Conservatives set out their conditions, they immediately said that they would vote against the agreement with the European Union, if it would not be a compromise. But on a number of fairly serious and important issues, Labour and Conservatives have diametrically opposed positions. In other words, whatever agreement Theresa May has proposed, it will not suit either one or the other. As a result, Theresa May had no choice but to agree to put the Brexit plan into a vote, and then she will immediately resign. All this will happen before June 15. And not without the traditional cherry on top, the role of which was played by Boris Johnson, who at one time resigned because of his disagreement with the way Theresa May is negotiating Brexit. The same day that Theresa May announced her defeat, the former British foreign secretary immediately declared that he was ready to take the post of prime minister of the United Kingdom. But the most important thing in this whole story is that a "divorce" without an agreement really became a reality. This carries with it tremendous risks of uncertainty, both for the UK and for the entire European Union. But it is precisely this very uncertainty that investors fear the most.

It's funny, but all the most dramatic events of this farce developed exactly at a time when retail sales and industrial production data were published in the United States, so investors were busy eating popcorn, not focusing on how Trump "makes America great again." The thing is that the growth rate of industrial production slowed down from 2.3% to 0.9%, and retail sales from 3.8% to 3.1%, which should have a negative impact on the dollar. But all were busy at much more exciting things. Fortunately, on other days, US statistics were purely positive. Thus, the number of construction projects starts increased from 1,168 thousand to 1,235 thousand, and the number of building permits issued from 1,288 thousand to 1,296 thousand. In addition, the number of initial applications for unemployment benefits decreased from 228 thousand to 212 thousand, while the number of repeated applications from 1,688 thousand to 1,660 thousand

At the same time, the single European currency did not have a chance for a rematch, since European data was not surprising at all, and had completely coincided with preliminary estimates. Thus, the economic growth rate remained at 1.2%, and inflation accelerated from 1.4% to 1.7%. But everyone has already been ready for such a development. But the UK was pleasing, or rather upsetting, not only due to its exciting palace intrigues but also with its statistical data. Yes, you can, of course, say that the unemployment rate fell from 3.9% to 3.8%. But after all, this is data for March, whereas April data on applications for unemployment benefits showed an increase from 22.6 thousand to 24.7 thousand. That is, we are waiting for the growth of unemployment next month. But more importantly, the same March wages data makes us nervously recall where the drops of the heart were lying around at home. Indeed, the growth rate of average wages slowed from 3.4% to 3.3%. But this is not a reason to grab the heart. The trouble is that the rate of growth of average wages, taking into account bonuses, and this means remuneration for overtime, slowed down from 3.5% to 3.2%. These employees do not want to stay at work, and, in all likelihood, rush home to watch the next series of the most popular TV series of our time, which is Brexit.

In any case, it is clear that even if it were not for the next scandals surrounding Brexit, the dollar had enough reasons to strengthen. Maybe not on such a scale, but nonetheless. So let's turn our attention to the US statistics, which will be published this week. The data itself will be quite small. Sales of new homes can decrease by 3.8%. Orders for durable goods are expected to fall by 1.8%. Moreover, there was a sharp decline in the number of applications for unemployment benefits, this number usually grows. Therefore, the dollar is worth worrying about. The Federal Reserve may add fuel to the fire. First, Jerome Powell comes up with a rather interesting topic called "Rising risks for our financial system." Here the name itself is scary, and if we still recall the regulator's endless lamentations about the risks associated with the trade war with China, and the recent mutual increase in customs duties between the United States and China, everything becomes much more interesting. Secondly, the text of the minutes of the meeting of the Federal Open Market Committee (FOMC) on open market operations will be published, from which indications can be removed not only on the dates for raising the refinancing rate, but even on such plans and reflections. In short, the dollar can only be helped by a miracle.

The single European currency will not exactly play the role of a miracle worker, since no macroeconomic data is published in Europe itself. But data on inflation will be published in the UK, which, as an evil, should show its acceleration from 1.9% to 2.2%. However, the growth rate of retail sales should slow down from 6.7% to 4.5%, which is not compensated by any inflation growth. But we must remember that the dollar is significantly overbought, and European statistics have much more weight than the British one. So if British politicians do not strain again and do not come up with any more scandals with Brexit, nothing will be left for the dollar except to decline.

Thus, we should expect a gradual growth of the single European currency to 1.1250.

The pound's growth potential is much smaller, although it is more oversold. In many ways, expectations for British statistics are not that upbeat. Also, British politicians are completely unpredictable. Nevertheless, it is worth waiting for at least the beginning of the movement in the direction of 1.2850.