15.07.201911:29 Forex Analysis & Reviews: Weekly review of EUR / USD and GBP / USD pairs from 07.15.2019: Fictional hysteria

Let's say, the dollar symbolically become cheaper by about fifty points at the end of last week, in relation to the single European currency and the pound. In many ways, the reason for this behavior lies in the actions of the Federal Reserve System. True, the matter is not in the statements of representatives of the Federal Commission on operations on the open market, to which, many of them write off everything. After all, Jerome Powell said nothing at all about the refinancing rate, except that the regulator must adhere to an adaptive approach to the conduct of monetary policy. Only Bullard explicitly stated during the upcoming meeting of the Federal Commission on Open Market Operation that he would vote for the rate cut but he didn't surprise anyone as last time. He voted for this decision. Also, the fact that the Federal Reserve will reduce the refinancing rate is not unexpected since this is what everyone began to prepare for immediately after the previous meeting. The content of the minutes of the meeting of the Federal Commission on open market operations was unexpected, as it says that the regulator will suspend the repurchase of assets in September. In other words, the scope of monetary policy easing will be somewhat larger than expected. But the funny thing is that the dollar fell sharply in a few hours, both before the speeches of representatives of the Federal Reserve System and the publication of the text of the minutes of the meeting of the Federal Commission on Open Market Operations. The mass agitation and misinformation of all the dogs were hanged on the unfortunate Jerome Powell but it seems that someone just knew the contents of the protocol text in advance. Moreover, the market was almost rooted to the spot during the speeches of Jerome Powell and James Bullard and at the time of publication of the text of the protocol.

In theory, since the scale of easing of the monetary policy of the Federal Reserve System is expected to be somewhat larger, the dollar should have weakened much more. However, it received unexpected support from US macroeconomic statistics. On the one hand, inflation slowed down from 1.8% to 1.6%. This did not come as a surprise since it was exactly the result that investors had hoped for, that is, this fact was laid in advance in the value of the dollar. However, monthly inflation data showed not its immutability but a rise in price by 0.1%, which suggests that the slowdown in inflation is temporary. The data on producer prices confirms the assumption that the growth rates of which slowed down from 1.8% to 1.7%, then they waited for a slowdown to 1.6%. Yet, the data on the labor market is somewhat disappointing.

After all, apart from the minutes of the meeting of the Federal Commission on Open Market Operations, the text of the minutes of the meeting of the Board of the European Central Bank was also published but did not present any surprises. Everything that was written in it, Mario Draghi announced during his press conference on the results of that same meeting. Let me remind you that back then, it was said that the refinancing rate would remain unchanged, "at least until mid-2020" (this is the wording of the protocol text), and the rate of prolongation of loans issued to banks during the quantitative easing program will be reduced. Although these are also measures to mitigate monetary policy, everyone has long been aware of them. In addition, the growth of the single European currency was restrained by industrial production data and the decline of which increased from -0.4% to -0.5%.

If we talk about the pound, then it really had to go up. Unlike in Europe, the decline in industrial production was replaced by an increase from -1.1% to + 0.9%. But as in the case of the single European currency, its growth was restrained by relatively good American statistics, as well as weak macroeconomic data from the Old World.

Of course, recalling the hysteria that representatives of the Federal Reserve System allegedly weakened the dollar, I want to draw attention to the upcoming speeches of Jerome Powell and James Bullard. However, hey didn't say anything last week either. Moreover, the closer the meeting of the Federal Commission on Open Market Operations, the less loud statements will be made. But on Tuesday there are extremely important macroeconomic data, particularly retail sales. The growth rate of which can accelerate from 2.9% to 3.0%, which to a certain extent levels the negative due to the slowdown in inflation. Moreover, there are serious reasons to believe that this is temporary. True, optimism will be restrained by data on industrial production but its growth rate may slow down from 2.0% to 1.7%.

However, the European statistics, especially against the background of the American one, looks rather weak. The main news will be data on inflation, which should remain unchanged at a rather low level of 1.2%. In addition, the growth rate of the construction industry should slow down from 3.9% to 2.4%. So, there is no reason for optimism about a single European currency. and the single European currency has every chance to decline to 1.1200.

The situation is somewhat different in the UK, as there is a little more macroeconomic data and forecasts for them are rather optimistic. However, the average wage growth rate, excluding bonuses, can accelerate from 3.4% to 3.5% and the number of applications for unemployment benefits should decrease from 23.2 thousand to 18.9 thousand. Moreover, the growth rate of retail sales is likely to accelerate from 2.3% to 2.6%, which slightly flattens a slight disappointment because of the immutability of inflation. The data for which are to be released a day before the publication of retail sales data. In other words, the pound has the opportunity to strengthen its position against the dollar and the forecast looks like 1.2625.