17.10.201910:08 Forex Analysis & Reviews: Trading plan for EUR/USD and GBP/USD on 10/17/2019

Mass media and disinformation so often talk about the possibility of signing a deal between London and Brussels, as if nothing else is happening in the world. At the same time, in fact, nothing has changed during the day, but the frequency of mentioning this story is only increasing. In this case, it is only about the fact that the chances are that Boris Johnson will have an agreement on his hands on Friday, which will only be approved by the House of Commons. However, what if everything turns out to be just empty words again, no one says anything. So to say, nobody wants to think about bad things. Thus, it is not surprising that the pound is confidently pulling up, as the emotional background is too optimistic.

It is clear that overwhelming emotions and blind faith in a bright future somehow do not particularly combined with rational thinking and reasoning on the real state of things. It is always nicer to think about how good it would be if everything were better. After all, reality is so boring and wrong. Unfortunately, inflation in the UK did not accelerate from 1.7% to 1.8%, but remained unchanged. So, instead of adjusting the forecasts for the profits of British companies, and consequently the returns on their shares, and for the worse, it is much more interesting to rejoice that soon this whole epic with Brexit will be successfully resolved. After which, of course, all problems will immediately disappear as if by magic.

Inflation (UK):

However, euphoria is a virus that spreads through the air, since no one looks at macroeconomic data on the continent so as not to be upset once again. It turns out that inflation in Europe slowed down from 1.0% not to 0.9%, but to 0.8%. In fact, this directly indicates that the European Central Bank may transfer the refinancing rate to the negative zone before the end of this year. Italy, which is the third eurozone economy, spoke no less solemnly. After all, not only did inflation drop from 0.4% to 0.3%, but also industrial orders, which were already down 0.8%, intensified their decline to 10.0%. This is in annual terms and there is no other way than a catastrophe.

Inflation (Europe):

Nevertheless, it is not necessary to think that only in the Old World is the economy more like a corpse. The United States also hinted at a deterioration in its health yesterday. True, a rather peculiar hint. Retail sales growth slowed from 4.4% to 4.1%, which, of course, is bad. However, the previous results were revised for the better, just from the same 4.1%. So if you exclude the revision of the data, the growth rate of retail sales remained unchanged. It is worth noting that the slowdown was initially expected to 3.8%. In other words, we can say that the data turned out to be even better than the most daring forecasts.

Retail Sales (United States):

Today, it is clear that all attention will be focused on the summit of the European Union, particularly to Brexit. The media will stubbornly search for hidden meanings in the words and hints that European politicians will do. The main theme of the headline will be what emotions the heads of European Union countries experience. To simply put it, the emotional background will go off scale, and no one will look at macroeconomic statistics behind this screen. But when this saga is over and the circus leaves, investors will be left face to face with a dry economic reality, which everyone has so carefully ignored so far, although there is something to see. Thus, in the UK, they expect acceleration of retail sales growth from 2.7% to 3.2%, which somewhat compensates for the steadily low inflation. At the same time, in Europe, they expect acceleration in the growth rate of the construction industry from 1.1% to 2.6%. However, the largest block of data comes out in the United States, and to be honest, it may well justify a weakening dollar today. So, the number of new construction projects should be reduced by 8.6%, building permits as much as 26.0%. That is, the growth of construction is not worth the wait. In addition, the growth rate of industrial production should slow down from 0.4% to 0.1%. But still, the only thing that will excite everyone is the fate of the agreement. And if at least one of the European politicians expresses cautious doubts about the possibility of his conclusion today, then the pound will move down, at least at the first space speed.

Industrial Production (United States):

The euro / dollar currency pair, nevertheless, managed to break down of the framework of the previous accumulation and resume the upward trend, eventually reaching the next level of 1.1080. It is likely to assume that the existing amplitude fluctuation along the level of 1.1080 will not last very long, where in case of fixing a price higher than 1.1090, the movement may resume towards 1.1100 / 1.1110. Despite this, an alternative scenario will be considered if the price is fixed lower than 1.1055.

The pound/dollar currency pair did not manage to hold back within the range of 1.2770, locally shooting down to the level of 1.2875. It is likely to assume that this kind of emotional course in the form of flashes will still resume in the market, where it is worth considering the values of 1.2875 and 1.2730 in terms of identifying the main jump.