Yesterday, the European currency rose sharply against the US dollar, after the market fears were confirmed. Speaking in the US Congress, the head of the Fed once again made it clear that a cautious approach to changing interest rates will continue. This suggests that, at best, investors will be able to count on one rate increase this year.
Brexit and Theresa May
The British pound also rose after British Prime Minister Theresa May changed her approach to the Brexit agreement.
It became known yesterday that Theresa May agreed to a vote in Parliament to adjourn Brexit, but on condition that the lawmakers rejected her proposal to leave the EU next month. The new Brexit proposal, which May is currently working out with EU representatives, will be put to a vote on March 12. The whole emphasis is shifted to solving the problem of the border with Ireland.
This option, of course, reduces the likelihood that the UK will leave the block without an agreement, which will support the British pound this week.
As for the technical picture of GBPUSD, it is necessary to note that the pair has approached very large resistance levels on the daily charts, which coincide with the highs of September 2018. Their breakthrough will lead to a test of the highs from July 2018 around 1.3362. In the case of a downward correction, support will be provided by areas 1.3150 and 1.3050.
Jerome Powell and the Fed
As noted above, the US dollar declined during the Fed chairman's speech, ignoring the data on new US home mortgages, which declined in December 2018.
According to a report by the US Department of Commerce, the laying of new homes in December decreased by 11.2% compared with the previous month and amounted to 1.078 million homes per year. Building permits in December increased by 0.3% compared with November and amounted to 1.326 million homes per year. Economists had expected new home bookmarks to fall by 1.3%.
The confidence of American consumers, as in many eurozone countries, is gradually returning. According to the Conference Board report, the consumer confidence index in February 2019 rose to 131.4 points against 121.7 points in January. Economists had expected the index to be 124 points in February.
Restoration of consumer expectations is directly related to the growth of US stock markets and a decrease in their volatility, as well as the resumption of the work of the US government after the January "shutdown".
Fed Chairman Jerome Powell, in his speech, stated that monetary policy decisions will continue to depend on incoming data in the future.
According to him, despite the fact that the current economic situation is healthy and prospects are favorable, in recent months there have been reciprocal currents and ambiguous signals for the prospects for the US economy.
Powell also noted that the labor market remains strong, and signs of strengthening wage growth are an event that can only be welcomed.
Do not forget the Fed chairman to speak out about the inflation background. In his opinion, restrained inflationary pressure allows us to be patient with monetary policy, and right now is a good time to be patient and see how the situation will develop in the future.
As for the technical picture of the EURUSD pair, only a confident breakthrough and fixing above the resistance of 1.1400, which I personally doubt very much, will allow us to expect new highs in the area of 1.1430 and 1.1460 to be updated with the trading tool. A more interesting option for purchases will be a correction to support 1.1345 and 1.1315.
