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21.05.201912:27 Forex Analysis & Reviews: EUR and GBP: A strong labor market is not a reason for rising inflation. Problems in pound can be added

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As an order, yesterday, a number of Fed representatives discussed the topic of the labor market and the level of inflation, which, apparently, do not depend on the US anymore. The lack of important fundamental statistics prompted investors to take a wait-and-see position before important reports, as well as elections to the European Parliament. The absence of a deal between Labor and the Conservatives of Great Britain also pushes away the supporters of the British pound from purchases.

During yesterday's speech, Federal Reserve Chairman Richard Clarida said that the US labor market cannot go beyond full employment, even if the unemployment rate is below 3.6%. Therefore, you should not worry about the risk of growth of potential inflation. According to Clarida, inflation has become less sensitive to labor shortages.

A similar statement was made by the President of the FRS-New York, John Williams, who yesterday spoke about the views of the Central Bank leaders on low unemployment, which, most likely, will not provoke inflation. Williams said that the economy can have a strong labor market in the absence of rising inflation. Let me remind you that at present, inflation in the United States remains below the target level of the Fed, which is about 2%. All this happens at the moment of a strong labor market, where wage growth continues and a shortage of qualified personnel continues to increase. A number of experts note that precisely because of the low level of unemployment, the leaders of the Federal Reserve System abandoned plans to further increase interest rates, as this could lead to an even greater slowdown in the growth of the inflationary background.

Exchange Rates 21.05.2019 analysis

As for the current technical picture of the EURUSD pair, it remains unchanged, and did not make major changes yesterday. Further movement will depend on parliamentary elections. There is support in the area of 1.1135, below which it will be difficult for the bears to break through from the first rose. As for the upward correction, it will be limited by the resistance of 1.1205, where you can count on a return to the market of sellers of the European currency.

The British pound, meanwhile, remains under pressure, but the pause in the downward movement is directly related to today's hearings in Parliament on inflation, as well as the speech made by the Governor of the Bank of England Mark Carney on this topic. If Carney does not report problems with rising inflation and exceeding its target level, then, apparently, the pressure on the pound will return, as a breakthrough in negotiations between the two main parties in the UK increased the risk of leaving the EU without a deal. To all this, there was talk that the risks of Britain's exit from the EU without an agreement can grow even more if the British Prime Minister Theresa May was replaced by a Brexit supporter as the leader of her party. Given the fact of how quickly May loses her leadership position, the scenario of a hard break in relations is not excluded.

Jakub Novak
Analytical expert of InstaForex
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