18.10.201808:09 Forex Analysis & Reviews: Waiting for FOMC protocols

The key event on Wednesday is the publication of the FOMC meeting minutes dated September 26. Stock markets rather went into a deep correction last week, and at the moment, the overall tone of the protocols may seem more optimistic and not relevant at the present time. Markets are waiting for the text of the protocol regarding the Fed's plans and will compare them with the incoming macroeconomic statistics. Falling markets can make adjustments to these estimates and trigger a sell-off of the dollar since its current quotes have rather high economic expectations.

Donald Trump spoke out rather negatively about the Fed's policy, saying that he sees the main threat to his success as president in raising the stakes. Obviously, in this way, Trump voiced concerns that were recently formulated by the Congressional Budget Committee where a rapid rate increase and a simultaneous increase in the level of public debt will lead to a rapid increase in the budget deficit, which Trump's tax reform does not just have time to stop.

Eurozone

Consumer prices in the euro zone rose in September by 2.1% year on year while the root index (Core CPI), which does not take into account energy and food, rose by 0.9%. Consequently, both indicators coincided with forecasts.

In general, prices in the eurozone has once again demonstrated good dynamics after the failure in 2017, even slightly exceeding the target of the ECB, set at 2%. This gives the regulator additional opportunities to generate changes in monetary policy. There is some concern about the slowdown in business activity, which was noted by yesterday's ZEW release but there is no long-term conclusions can be drawn from it. Next week, Markit, Gfk and CES ifo will present their reports and the latter two will do it exactly on the day of the ECB's monetary policy meeting on October 25. Up to this point, there are no expected serious movements caused by internal causes in the eurozone.

The EUR/USD pair is falling on Wednesday's trading, but this decline is not long-term. Most likely, the euro will hold above 1.1533 and return to the consolidation zone, if this does not happen (less likely scenario). Then, it will be necessary to assume that the markets are preparing for a more hawkish tone of the FOMC protocols than expected at the beginning of the week.

Great Britain

In September, inflation slowed to a three-month low as figures show a + 2.4% versus + 2.7% last month. This decrease was stronger than predicted, and led to the sale of the pound. The foodstuffs bore the brunt of a blow, as last year's surge in prices for this group of goods did not repeat this year. The price of transport services was further reduced after strong growth in the summer and even a 1.8% increase in energy prices did not help the general deterioration.

It is also necessary to note the slowdown in housing cost growth (CPIH), which is a reaction to the increase in the rate of the Central Bank of England and the rise in the cost of loans. The construction boom has been completed, prices have gone down and (UN) housing costs for owners have decreased.

Core inflation slowed from 2.1% to 1.9%, and now, a further increase in the rate is under a big question. On the one hand, the Q3 inflation was 2.5% on average, which is quite consistent with the Bank of England forecast. On the other, the slowdown in price growth is obvious and cannot be ignored.

Certain optimism is provided by the dynamics of producer prices, whose growth is even higher than forecast, which allows us to rely on the growth rates of average wages to remain steady.

Today the EU summit begins its work, where it is expected for the basic principles of a future divorce with Great Britain will finally be fixed. The chances of a positive result are still there, although a number of high-ranking EU officials have already urged to prepare for the "worst case scenario." Insider information is contradictory. There is no clarity, hence the pound can nervously respond to any news if it turns out to be at least any significant.

In general, the pound is expected to be neutral and the most likely scenario is the GBP/USD pair to consolidate in anticipation of news from Brussels. The pound will continue to be traded in a wide range around 1.3077 and 1.3258 with an appeal to go to the bottom of the range.