Both the single European currency and the pound were trading flat during the past week. Naturally, these currencies dropped synchronously on Tuesday, but this drop passed almost unnoticed and looked more like a technical rebound after a rapid rally seen in the previous week. The rally was triggered by the outcome of the FOMC monetary policy meeting. In any case, the single European currency ended the week at exactly the same levels that at which it opened the week. At the same time, the pound sterling fell by about 25 points. Even the Russian currency turned out to be surprisingly resilient against the US dollar. In a week, the dollar could only strengthen by 15 kopecks. In general, the week was quite boring.
This is largely due to the somewhat shocking results of the latest Fed meeting after which it became clear to everyone that the Federal Reserve will soon begin to soften its monetary policy. But after all, last year many investors factored in at least one rate hike in the current year. Now, they have to revise their plans for the future. However, the dollar cannot be constantly falling, especially if the massive selloffs lead it to the oversold condition. So, the market needed at least some reason for the price correction, but sometimes it's so hard to find it. Presumably, the greenback's rise, which occurred on Tuesday, was mostly contributed to traders' unwilingness to wait any longer.
Even macroeconomic statistics could not help market participants as it looked extremely downbeat. For example, sales of new homes in the United States fell by 7.8%, while orders for durable goods decreased by 1.3%. The total number of applications for unemployment benefits increased by 32 thousand. Only the final GDP data for the first quarter was somehow able to encourage market participants, coinciding with preliminary estimates and showing that the economic growth rate accelerated from 3.0% to 3.2%. However, this data did not quite impress anyone since investors had expected such a result factored it in the dollar value a bit earlier. Meanwhile in Europe, only the preliminary inflation data was released, showing an unchanged reading at a rather low level of 1.2%. The final UK GDP data the first quarter showed an increase from 1.4% to 1.8%. But it was also largely expected. Thus, the macroeconomic data from the United States still pointed to the weakening dollar. Yet, the oversold greenback and uncertainty in Europe prevented the pound and the single European currency from rising futher.
This week Americans will celebrate Independence Day. Thursday will be a day-off day and the coming week will be much more interesting than the previous one. This is largely due to the publication of the of the US Department of Labor report, which is released every first Friday of a month. It is expected that the content of the July's report will be much better than the June's report. In particular, a rise of 158 thousand in non-farm payrolls is expected versus an increase of 75 thousand in the previous month. Besides, the growth rate of the average hourly wage can accelerate from 3.1% to 3.2%. All other parameters should remain unchanged. As a matter of fact, no other significant reports are scheduled for release in the United States, except for the summary data on business indices that showed a slight decrease in both the production index and the service sector index. However, this is already taken into account by the market. Thus, investors will be guided only by the content of the report of the Department of Labor. Europe also publishes summary data on PMI readings, which will almost certainly coincide with a preliminary estimate that showed an increase in all indicators. But as in the case with the US indices, all this is already taken into account by the market. Data on retail sales in Europe will remain unnoticed. Both are due to the reason they are published just when the United States celebrates Independence Day. Moreover, it is because their growth rates should remain unchanged. In the United Kingdom, business activity indices will also be published but these can have some impact on the market given that there are no preliminary data for them. Most likely, it will be negative since growth is expected only on the index of business activity in the construction sector from 48.6 to 49.3. The manufacturing PMI may fall from 49.4 to 49.2 while the services PMI is expected to decline from 51.0 to 50.6. Last but not least, consumer lending can be reduced from £ 942 million to £ 967 million. Also, the number of approved mortgage applications is likely to fall from 66,261 to 65,600.
Thus, the contents of the report of the US Department of Labor will almost certainly become the reason for the dollar correction. The single European currency will drop to 1.1200.
The pound also has no special reasons to keep at the achieved levels. Therefore, it will have to decrease with the target level of 1.2550.
