The report on the US labor market, which investors assumed would provide information on the general direction of the upcoming Fed meeting, not only did not provide answers to the expected questions, but rather put new ones.
The number of new jobs in February at the level of 20 thousand was significantly less than the forecast of 180 thousand, which gives additional arguments to the pigeon wing of the FOMC. At the same time, an explanation was found quickly, and it seems that it completely satisfied the players - firstly, such failures sometimes happen, the main thing is that they are not confirmed next month, secondly, the weather is bad, and thirdly - the reason for the shutdown, and this means the factor is temporary and has already played.
At the same time, a number of other parameters in the report are confidently positive - the unemployment rate fell from 4.0% to 3.8%, the average wage increased by 0.4%, and the annualized increase was 3.4%.
Investors preferred to consider the report neutral and even somewhat positive, which was reflected in the growth of the dollar index by the close of the week. At the March 20 meeting, the Fed will present updated macroeconomic forecasts, and the increased uncertainty will be interpreted by the markets in favor of the dollar rather than against it. If the conclusions of the markets are correct, then today's report on retail sales in January will show growth against December and will confirm confidence regarding strong consumer demand.
Industrial production in Germany fell by 0.8% in January. The result was noticeably worse than expectations. In addition, the trade balance also dropped significantly due to a fall in import growth rates and a simultaneous increase in imports by 1.5%.
Markets, however, almost did not react to the negative, judging that the data for January after the ECB meeting is not so relevant.
The euro is trying to push off from the 1.1175 low reached on March 7, and the reasons for this are quite convincing. First, there are still signs of a recovery in the eurozone economy, despite the long deceleration phase in 2018. And secondly, all the negative things that could happen have already happened - the ECB lowered its forecasts and announced the introduction of the TLTRO 3 program in September. Now, uncertainty will bring positive news for the euro rather than negative, which means there are not many reasons for further decline at this stage. EURUSD on Monday may try to return to resistance 1.1260 / 70 and then go to the side range in anticipation of new data.
Tomorrow, the three-day marathon will start in the Parliament of Great Britain. By the end of which, as expected, a decision will be made to ask the EU to extend the action of Art. 50 of the Lisbon Treaty. Markets regard this outcome of three consecutive polls as the most likely, and the pound, which is significantly losing in value, already takes into account the expected results.
The reasons for the fall of the pound are clear. On the one hand, the possibility of the UK leaving the EU without a deal at all decreases. On the other, any extension leads to an increase in the period of uncertainty, which leads to a decrease in investment and freezing of long-term projects. The Bank of England in the last quarterly report has already expressed concern about the decline in the flow of investments. The Lloyds business barometer in February experienced a rather strong decline, directly indicating that the bottom was still far away.
For the first time since the 2008 crisis, investment has been declining for four consecutive quarters, and there is no place for businesses to take positive guidance. The latest PMI surveys show that companies are preparing for a period of uncertainty, increasing inventories, which limits the growth potential in 2 and 3 quarters. Meanwhile, consumers in Britain are most pessimistic about the outlook of 12 months among all EU countries; forecasts for economic growth are revised downwards, which delays the beginning of a policy of normalization by the Bank of England to an uncertain future.
The main driver for the pound in the coming days is the ratio of supporters and opponents of May on the voting on March 12. If the gap is about 100 votes or less, then the markets will perceive this signal positively and the pound can win back some of the losses and try to return to level 1.3160. If May loses more than 230 votes, which is quite possible, the pound will go lower and demonstrate the ability to storm support for 1.2772.The material has been provided by InstaForex Company - www.instaforex.com