Weekly review of the foreign exchange market from 02/25/2019

In fact, throughout the past week, the dollar has lost its position, and this is largely due to the content of the text of the minutes of the meeting of the Federal Commission on Open Market Operations. In principle, as expected, the text of the minutes contains no direct indications of easing the monetary policy of the Federal Reserve System, but it contains quite interesting formulations regarding the need for a flexible approach and patience in the matter of further raising the refinancing rate, given that such language from the Federal Reserve System has not been met for a long time, everyone unequivocally deduced that this is preparing the public for a possible easing of monetary policy. Most likely, this will be done by reducing the rate of reduction in the balance sheet of the Federal Reserve system through asset repurchase.


At the same time, US statistics were rather ambiguous. On the one hand, the total number of applications for unemployment benefits fell by 78 thousand, of which 23 thousand were for initial applications, and 55 thousand for repeated ones. Also, orders for durable goods increased by 1.2% against 1.0% in the previous month. Moreover, preliminary data on business activity indices showed an increase in the services sector from 54.2 to 56.2, and a composite index from 54.4 to 55.8. However, the manufacturing index of business activity fell from 54.9 to 53.7. It is worth to note the decline in housing sales in the secondary market by 1.2%. Thus, US data does not give any definite answer about the state of the economy of the United States.

In fairness, it should be noted that European statistics are not encouraging. In particular, the growth rate of the construction industry slowed from 1.1% to 0.7%. A preliminary assessment of business activity indexes showed results similar to the US. Thus, with an increase in the business activity index in the services sector from 51.2 to 52.3, and a composite index from 51.0 to 51.4, the production index decreased from 50.5 to 49.2. But the final data on inflation confirmed the fact of its slowdown from 1.5% to 1.4%. But the significance of the content of the text of the minutes of the meeting of the Federal Commission on Open Market Operations is so great that European statistics could be even worse, and no one would have noticed.

The British pound strengthened sharply than others, since optimism and hopes for a positive outcome of the regular negotiations between Theresa May and Jean-Claude Juncker prevailed in the market. The meeting ended in the same way as all the previous ones - there are no agreements on the trade component, and Europe does not plan to make any additions or changes to the existing version of the agreement. But endless statements of mutual understanding and movement in the right direction have not yet bothered the market participants.


However, British statistics looked somewhat better compared to the United States and the European Union. Of course, Nationwide data showed a slowdown in housing prices from 0.4% to 0.2%, but this is where the negative news ends. The unemployment rate remained unchanged, as did the growth rate of the average wage. The number of applications for unemployment benefits fell from 20.8 thousand to 14.2 thousand, while public sector borrowing decreased by 15.8 billion pounds.

Although it is difficult to find something as important and meaningful as the minutes of the meeting of the Federal Commission on Open Market Operations, you will not be bored this week, since many interesting statistical data will be published in the United States. Thus, inventories in the warehouses of wholesale trade can increase by another 0.2%, and in fact the last time they decreased was back in November 2017. So the constant growth of reserves clearly indicates a crisis of overproduction. And in this regard, it is not surprising that the business activity index in the manufacturing sector is only decreasing. The number of new buildings can drop by 0.5%, and the issued permits by as much as 2.8%. Also, the growth rate of housing prices should slow down from 4.7% to 4.5%. On the other hand, production orders should increase by 0.9%, and orders for durable goods by another 0.2%, but this will only slightly smooth out the negative from all previous data. But what is more important is the preliminary GDP data, which may show a slowdown in economic growth from 3.4% to 2.4%, and such a sharp slowdown does not bode well for the dollar.

In Europe, however, very few statistics are published, and will be released only at the end of the week. However, this does not reduce their significance, but on the contrary. After all, such important data like unemployment and inflation will be published. If the unemployment rate should remain unchanged, that is, at 7.9%, then the preliminary inflation data may well show its growth from 1.4% to 1.5%. Thus, the single European currency has all the chances to strengthen to 1.1450.


But before the week even began, the pound received a wake-up call. Indeed, on Thursday, another vote was scheduled on the issue of a divorce agreement with the European Union. However, Teresa May decided to postpone it, realizing that the Parliament would reject it once again, since there were no changes in the text of the agreement, especially on those fundamental issues that had already been rejected. In the European Union itself, they hinted that they could go on a reprieve right up to 2021, if the British government itself asked for it. However, it is unclear what it will give, since the parties from 2016 can not agree on trade and border issues. At the same time, Europe itself is not eager to come to an agreement on these issues. So we are once again waiting for scandals and rumors, because of which the pound will be thrown from side to side. Naturally, against this background, no one will remember British data, although there will be something to see. In particular, the volume of consumer lending could reach 4.7 billion pounds compared to 4.8 billion pounds in the previous month. Also, the index of business activity in the manufacturing sector can be reduced from 52.8 to 52.0. Equally important, a reduction in the number of approved mortgage applications is expected. However, the next tales about the fact that the parties will still find a solution to unsolvable issues will have a beneficial effect on the pound, and the sterling will be able to strengthen to 1.3350.


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