Europe prepares for Brexit, the USA for elections, and Japan for recession

The US labor market report for March was without any surprises. After the disappointment in February, the number of new jobs expectedly increased and the result of 196 thousand exceeded the forecast of 180 thousand. The result of the two previous months was revised by +14 thousand. Overall, the growth of jobs returned to the average value of last year and this should be considered a clearly positive factor since the Fed's calculations assumed a decrease in the number of newly created jobs to 60-70 thousand per month last year.

At the same time, the growth of the average wage slowed down to 0.1% on an annualized basis with the slowdown from 3.4% to 3.2%. The fears of a slowdown in inflationary pressure increase, which gives a quite logical justification for the pause taken by the Fed in normalizing monetary policy.

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In general, the report should be considered balanced and the dollar could somewhat weaken given the slowdown in wage growth but the end-of-week factor and the increased tension regarding Brexit did not allow it to decline.

On Wednesday, data on consumer inflation will be published, which may somewhat adjust market expectations. In general, the dollar situation should be considered stable, despite the fact that in general there are not so many real growth factors. Negotiations with China are noticeably slowed, despite the rather vigorous statements by US Trade Representative Robert Lighthizer and Finance Minister Stephen Mnuchin. Moreover, if the agreement was expected to be signed at the beginning of the year by the end of March, it is now unclear whether the negotiations will be completed in April or May.

The arrival of a recession is inevitable but this will not happen today or tomorrow. Apparently, this is the slogan of the day. Oil is growing and stock indices are growing. Central banks have refused to tighten and as a result, risk capital rules the ball.

USD / JPY pair

Japan's consumer confidence index fell to 40.5p in March against 41.5 p a month earlier, a decline is noted for all sectors including employment, real income, purchase of durable goods and the general standard of living.

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The slowdown is also shown by the Eco Watchers complex indicator of economic activity, where the current situation index fell to a 2.5-year low from 47.5p to 44.8p and the forecast indicator from 48.9p to 48.6p. Everything indicates that the exports decline in Japan leads to a decrease in real income and inflation will remain below the target of 2% for a long time. A quarterly survey of investors conducted by Mizuho showed that the number of respondents who are waiting for easing from the Bank of Japan has increased dramatically and most likely this factor will not allow the yen to grow in the near future.

The USD/JPY pair aims to test the March peak of 112.10 with a small threat of a return to the downward trajectory.

EUR / USD pair

On Wednesday, a regular meeting of the ECB will be held but the publication of new economic forecasts is not planned. The focus will be on Mario Draghi's press conference, which can change the delicate balance between the still strong labor market as well as the first signs of economic recovery on the one hand and low inflation and Brexit uncertainty on the other.

Draghi may disclose additional details of preparing for the introduction of the TLTRO3 program in September and combating the growing negative from negative deposit rates, which would indicate the depth of ECB fears about the timing of the recession.

The EUR/USD pair is near the multi-month low of 1.1173. The chances of testing it looks high, but they are unlikely to be realized before Wednesday. Monday trading is more likely to be range-bound at 1.1182 / 1255 with a gradual decrease to the lower limit of the range.

GBP / USD pair

The coming week may be decisive for the pound in terms of the development of a long-term trend. On Wednesday, several important macroeconomic releases will be published, including the trade balance, a report on industrial production and a forecast of GDP growth rates, and the last attempt will be made to find a way out for the UK from the EU with minimal losses at an extraordinary EU summit. By Friday, everything should be decided and the pound can expect an extremely volatile end of the week.

While there is no direction on Monday, the support zone is at 1.2960/85 and the resistance is at 1.3090/95. The pound will trade in a range in anticipation of news.

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

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