03.06.201915:07 Forex Analysis & Reviews: Weekly review of EUR/USD and GBP/USD pairs from 06/03/2019: Only the Middle Kingdom can stop the dollar

To some extent, the continuing strengthening of the dollar looks somewhat illogical and strange. After all, the second estimate of United States GDP in the first quarter was slightly worse than the first. Yes, the American economy continues to accelerate to 3.1% instead from 3.0% to 3.2%. The fact is that investors have already laid the acceleration of economic growth just up to 3.2% in the value of the dollar. Hence, they had to revise their plans and for the worse, another bad news was the data on unfinished housing sales. The number of which decreased by 1.5% but what is more important is that this is monthly data. In annual terms, the number of pending transactions is reduced by as much as 2.0%. True, it was not without good news especially with regard to applications for unemployment benefits. The total number of which decreased by 22 thousand. Of course, the number of initial applications increased by 4 thousand but the number of repeat ones decreased by 26 thousand. Also, personal income and expenses increased by 0.5% and 0.3% and outpacing the growth of income did not scare anyone. As in the previous month, income and expenses increased by 0.1% and 1.1%. After such rapid growth in personal spending, it is quite obvious that revenues should grow somewhat stronger. Thus, it turns out that American statistics were generally neutral.

But European statistics cannot be called weak either. Moreover, there were very few macroeconomic data in the Old World. Thus, the growth rate of consumer lending in the euro area accelerated from 3.2% to 3.4%. Lending in the UK is also doing well, as net consumer lending increased from 4.7 billion pounds to 5.2 billion pounds. Also, the number of approved mortgage applications increased from 62,559 to 66,261. Thus, if you look at the statistics, the dollar should have lost ground but the picture turned out to be completely different.

In many ways, such a strange behavior of the dollar is due to the gradual awareness of the fact that Theresa May's resignation gives nothing and everything moves towards an unregulated Brexit with all the consequences. No one can say right now what the consequences will be for both for Great Britain and for Europe. Obviously, this does not bode well especially if Boris Johnson becomes the new prime minister, who is in favor of an early exit from the European family without a deal. Donald Trump, who openly declared that Boris Johnson is the best candidate for the post of Prime Minister of the United Kingdom, added fuel to the fire and mentioned in passing that the UK should move out of the European dormitory without any compensation and fines. Of course, in no case should one confuse the statements of the President of the United States with interference in the internal affairs of the United Kingdom but the owner of Trump card did not stop there. Once again, they demanded that Europe immediately bring its military spending to the minimum size established by the rules of NATO.

At the same time, Donald Trump ultimatum still demanded from Europe to increase purchases of American weapons. That is, we introduce duties on your goods but do not be angry and increase our purchases. However, at the very end of the week, the dollar had to be turned back a little, a little dumbfounded by the impudence of China. The fact is that the Deputy Foreign Minister of China made a fiery speech in which he called the actions of the United States as blatant economic terrorism, chauvinism, and intimidation, after which he announced the introduction of additional customs duties on US goods worth $60 billion. From such arrogance in Washington, they choked so much that they still cannot come to their senses to this day. After all, it is only they who can set the rules and dictate terms and all the others must unquestioningly fulfill the will of the White House. Yet, the most interesting thing about all this is that the deputy foreign minister said about the reciprocal measures of the Middle Kingdom, which means that this is not the worst thing that can be expected from Beijing. Higher comrades will declare much more drastic measures and all the others must unquestioningly fulfill the will of the White House.

The first week of summer will be extremely rich in macroeconomic statistics, which will greatly distinguish it from the past week but the main event will be the publication of the report of the United States Department of Labor since the content of this report can seriously disappoint market participants. On the one hand, the average working week should increase from 34.4 hours to 34.5 hours, and the growth rate of the average hourly wage is likely to remain unchanged. That is, Americans work more and get more in the amount but at the same time, the unemployment rate may increase from 3.6% to 3.7%, and 190 thousand new jobs should be created outside agriculture, against 263 thousand in the previous month. In other words, even though Americans are starting to work more for the same money, the number of workers themselves becomes less. This is not the news that all sorts of investors want to hear. In support of this not very joyful thesis, the ADP report should show an increase in employment of 185 thousand versus 275 thousand a month earlier. Also, the final data on business indices should confirm a preliminary assessment, which showed a strong decrease in these indices. Yes, and production orders can be reduced by 1.0%. In general, everything is bad. The only thing that can somehow please the market participants is the construction costs, which should increase by 0.5% but this is not the data that can have any impact on the markets.

Therefore, the American statistics will obviously contribute to the weakening of the dollar and only weak statistics from the Old World can save it. Oddly enough but this is exactly what everyone is waiting for. In particular, the final GDP data for Europe will almost certainly show the unchanged economic growth rate at an extremely low level of 1.2%. Retail sales growth is also expected to slow from 1.9% to 1.6% but the worst thing is that preliminary inflation data should show its slowdown from 1.3% to 1.0%. The final data on business activity indices will confirm the fact of their decline. British business activity indexes will also not please investors since the business activity index in the manufacturing sector has already shown a decline from 53.1 to 49.4. Thus, other indexes are more likely to show a decline but the worst thing is that a meeting of the European Central Bank will take place this week, which in itself is not interesting to anyone unlike the subsequent press conference of Mario Draghi.

Taking into account the content of the text of the meeting of the Federal Reserve System, in which the possibility of reducing the refinancing rate was almost directly stated, the head of the European Central Bank is expected to confirm plans to gradually tighten monetary policy. But most likely, Mario Draghi will disappoint everyone, and his wording will be extremely vague. Words about the risks caused by the trade conflict between China and the United States will be repeated, although nothing will be said about the actions of Donald Trump in relation to Europe itself compare to the subsequent press conference, Mario Draghi. Taking into account the content of the text of the meeting of the Federal Reserve System, in which the possibility of reducing the refinancing rate was almost directly stated, the head of the European Central Bank is expected to confirm plans to gradually tighten monetary policy.

It is in favor of the dollar that the report of the Ministry of Labor will be published only on Friday, while in Europe negative news will come in during all the previous days. Hence, the single European currency will again become cheaper for almost the entire week and a rebound is expected only on Friday. But in the end, the single European currency should stop at the level of 1.1125.

Of course, Brexit is pressing hard on the pound, as well as the upcoming change of prime minister but it will not happen soon. Yes, Theresa May herself retires on June 7 from the post of head of the Conservative Party, but will continue to hold the post of prime minister until a new party head is elected. Such an exciting show will begin only on June 10 and should be completed by mid-July. Thus, Teresa May will still delight us with her brilliant ideas on how to reconcile the positions of conservatives and laborists for another six weeks, which is naturally a failure. Thus, the pound will follow the single European currency and only on Friday. It is worth waiting for a certain rebound and it will be at the level of 1.2625 by the end of the week.