10.04.201910:33 Forex Analysis & Reviews: Overview of the foreign exchange market 04/10/2019

The market froze in anticipation of both the results of today's summit of the European Union and the meeting of the Board of the European Central Bank, as well as data on inflation in the United States. Although the pound left a little from side to side, after the House of Commons passed the law on the postponement of Brexit, which really makes everything happening in the village Amateur, as all the terms have long been out, and now only the European Union can once again postpone the date of eviction of the United Kingdom from the European hostel. The single European currency simply ignored JOLTS data on open vacancies in the United States, the number of which decreased from 7,625 thousand to 7,087 thousand. So, market participants stopped waiting.

Indeed, today's summit of the European Union is the most significant event, and this day can go down in history for a long time. However, only if Europe refuses to give the UK another delay. Apparently, the probability of such a development is not so great as it seemed just a few days ago. In particular, this is indicated by the words of Donald Tusk that the countries of the European Union need to decide on the terms and conditions of the postponement. The point is that the UK may be obliged to take part in elections to the European Parliament, which will postpone Brexit indefinitely and lead to even greater conflict between Brexit supporters and opponents both among British politicians and Her Majesty's subjects. So the United Kingdom can offer this option of delay, from which it will be forced to refuse. Donald Tusk also added that the United Kingdom can withdraw its application for withdrawal from the European Union at any time. In other words, the situation is completely unpredictable, and everyone is sitting on knives. So it is better to keep calm and not make sudden movements. Frankly speaking, in this situation, the most reasonable is to wait for the results of the summit and act upon it.

Somewhat less interesting (but no less significant) is today's meeting of the Board of the European Central Bank, followed by a press conference of Mario Draghi. Just over the past couple of days, the recent words of the head of the European Central Bank that the Board of the regulator was disappointed in the policy of negative interest rates have been actively exaggerated in various media propaganda and misinformation. Every one understands that today there will be no increase in the refinancing rate, but an equally important issue is on the agenda. After all, following the results of the previous meeting, the European Central Bank actually resumed the program of quantitative easing by expanding long-term lending to banks. However, it is not clear how long and on what scale the office of Mario Draghi intends to refinance these same banks. So everyone is waiting for some specifics, and it is likely that the head of the European Central Bank will announce that the extended lending will last only a few months and by the end of the year the regulator will start preparing for an increase in the refinancing rate, which will be scheduled for early next year.

However, today's data on inflation in the United States, which can show its growth from 1.5% to 1.8%, is interesting. There was no complete certainty about the policies of the European Central Bank. The growth of inflation in America is quite a tangible factor, from which specific conclusions about the further actions of the Federal Reserve system follow. Moreover, Mario Draghi can say a lot of things without saying anything. Today, his words may turn out to be so ambiguous that investors will only have to operate with inflation in the United States. It is most likely that the single European currency will drop to 1.1225. However, Mario Draghi may surprise everyone, which he does quite rarely, and give specific answers and point to specific dates. We should not exclude the initial reaction of the market to a possible statement that the European Union is giving the UK another delay. No one will immediately look at additional conditions and the like. In this case, the single European currency can rise to 1.1300. It is best to act on the fact, and after waiting a little time until the initial hysteria passes.

The fate of the pound depends on the decision of the European Union to postpone Brexit. If Europe clearly says that there will be no more delays, the pound will fall to 1.2975. If Europe gives a delay, the pound will start to grow rapidly, and the first stop will be 1.3100. No one will pay attention to all sorts of reservations and additional conditions. They don't usually make headlines. So the realization will come only later.