16.12.201910:32 Forex Analysis & Reviews: After a small correction (EUR/USD and GBP/USD review on 12/16/2019)

Of course, no one doubted that after an exciting flight to the stratosphere, caused by the deafening victory of Boris Johnson in the early parliamentary elections in the UK, a rollback would inevitably occur. However, the funny thing is that if the pound was incredibly technically rolled back exactly half the previous movement, then the single European currency managed to close in the red at the end of the day. To some extent, this is due to the fact that, no matter how the world's mass media and disinformation cover this event, parliamentary elections are for the most part a purely internal matter of the United Kingdom. Of course, this will have some effect on the European Union, but still not the same as in the UK. Therefore, as soon as the emotions somewhat calmed down, the single European currency went down much more actively.

At the same time, the pound was still lucky due to the fact that no macroeconomic data were published in the UK, so it was forced to rely only on American statistics. However, the emotional background was so strong that the pound did not really see the acceleration of retail sales in the United States from 3.2% to 3.3%. Although, it could dismiss this fact also for the reason that they predicted acceleration to 3.4%, so that the data turned out to be worse than forecasts.

Retail Sales (United States):

However, even the fact of a slower acceleration in retail sales in the United States did not save the single European currency. After all, retail sales are still growing in combination with inflation. So in general, the situation in the American economy is clearly improving, which cannot be said about the European Union. In particular, the decline in wholesale prices in Germany accelerated from -2.3% to -2.5%, which inevitably will adversely affect inflation in general. Moreover, since Germany is the main supplier of goods in the European market throughout Europe. From which, many European merchants buy goods from German wholesalers. In addition, if until recently, production orders in Italy showed an increase of 0.2%, they are now already decreasing by 1.5%. Now, only Spain could rejoice due to the fact that its inflation rose from 0.1% to 0.4%.

Wholesale Price Index (Germany):

Today, the single European currency will have every reason for unjustified growth, which is what it is already doing. The reason will serve as preliminary data on business activity indices, which should show growth. In particular, the index of business activity in the services sector can grow from 51.9 to 52.0, and the production index, from 46.9 to 47.3. As a result, the composite index of business activity should grow from 50.6 to 50.7. What is important is that Germany, the largest economy of the euro area, should demonstrate a quite impressive growth of business activity indices. Thus, an increase in the index of business activity in the service sector is expected from 51.7 to 52.0. On the other hand, the index of business activity in the manufacturing sector can grow from 44.1 to 44.5. As a result, the composite business activity index is likely to grow from 49.4 to 49.9. So to speak, it is expected that it will exceed the value of 50.0 points soon. In addition, Italy expects inflation to accelerate from 0.2% to 0.4%. However, the only negative factor will probably be the expected slowdown in wage growth in Europe, from 2.7% to 2.6%. Most likely, this fact will halt the growth of the single European currency, since these data are released later.

Composite Business Activity Index (Europe):

A similar situation is possible with the pound, since the UK is also projected to increase business activity indices. Preliminary data may show an increase in the index of business activity in the services sector from 49.3 to 49.6. At the same time, the index of business activity in the manufacturing sector can grow from 48.9 to 49.4. The consequence of this should be an increase in the composite business activity index from 49.3 to 49.6. Thus, they are waiting for an improvement in business sentiment in the United Kingdom.

Composite Business Activity Index (UK):

However, the forecasts are completely opposite in the United States. In particular, the index of business activity in the service sector may decline from 51.6 to 51.4. In the manufacturing sector, a decrease is expected from 52.6 to 52.4. Thus, the composite business activity index is projected to decline from 52.0 to 51.9. Although, given how much the indices in the services sector and in the manufacturing sector should decrease, the composite index will most likely decrease slightly more than predicted.

Composite Business Activity Index (United States):

Do not be surprised if the single European currency will grow to 1.1175 under the influence of all the factors above.

The growth potential of the pound is clearly limited due to the continued overbought. Nevertheless, today's data will still favor its growth, although it will be limited. Most likely, the pound will not be able to rise above 1.3425.