It is extremely difficult to get rid of the feeling that the purpose of the ECB is just to reduce the price of the euro, since while representatives of the European Central Bank remained silent, the dollar lost its positions. At the same time, it can't be said about the whole thing in European statistics, which in fact was rather weak. What was particularly amusing was the way in which Europeans report about another decrease in the unemployment rate, as the data itself showed to be unchanged, but a revision of the previous values in the smaller direction led to a reduction in unemployment. However, the growth rate of retail sales slowed from 1.6% to 1.4%, which, of course, few people can please. Nevertheless, it must be recognized that market participants are clearly looking for a reason for the growth of the euro, so, in many respects, its growth was due to data on business activity indices. Although the index of business activity in the manufacturing sector fell from 55.5 to 54.9, the index of business activity in the service sector showed an increase from 53.8 to 55.2. Given the much greater weight of the services sector, the composite business activity index rose from 54.1 to 54.9. Although the indices of business activity do not reflect the real state of affairs in the economy, but only talk about the moods and expectations of business representatives, investors are extremely sensitive to this indicator. Especially when there is no other data.
In any case, it can be seen that there were no special reasons for the growth of the euro, so it's worth looking at what came out in the US. And although the week was torn by the weekend, due to the celebration of Independence Day, last week was rich in macroeconomic data. As well as in Europe, there were data on business activity indices, in particular, the index of business activity in the service sector, which declined from 56.8 to 56.5. As a result, the composite index of business activity decreased from 56.6 to 56.2. So, unlike Europe, there was not much to be pleased about. Although there was a lot of positive news. So, construction costs increased by 0.4%, and production orders for the same 0.4%. Also, the total sales of vehicles increased from 16.9 million to 17.5 million. But all this fades against the background of the most important news that came out in the US, because the first week of each month is accompanied by the publication of a whole data block on the labor market. All began with employment, which increased by 177 thousand, while in the previous month it increased by 189 thousand. Simultaneously, along with the data on employment, there were data on applications for unemployment benefits, the total number of which increased by 35 thousand. In particular, the number Initial applications for unemployment benefits increased by 3 thousand, and worst of all, the number of repeated applications increased by 32 thousand. And all this in advance of the publication of the report of the US Department of Labor.
Speaking about the very report of the Ministry of Labor, its content is extremely ambiguous. On one hand, the unemployment rate unexpectedly increased from 3.8% to 4.0%, and against the backdrop of the fact that 213 thousand new jobs were created outside agriculture. Although 244 thousand were created in the previous month, taking into account the growth rate of the population in the USA, the creation of 200 thousand new jobs a month should not lead to an increase in the unemployment rate. The fact is that the share of the labor force in the total population increased from 62.7% to 62.9%, so that the rise in the unemployment rate should not bother investors. It happened solely due to a change in the demographic composition of the population. However, a huge cause for concern was the data on wages, as the growth rate of the average hourly wage remained unchanged, and now salaries are growing more slowly than the prices in stores. This is an extremely worrying factor, since all the positive from the price increase can evaporate, and a serious decline in consumer activity will begin.
This week, ECB representatives will again perform, with Mario Draghi performing twice already. However, the members of the board of the European Central Bank have already said so many things that now they will have to try hard to surprise the market. It can be said that only a direct statement that the program of quantitative easing will be extended after December will also lead to new shocks in the market. But this is more likely from the field of fairy tales about elves and orcs. So in Europe, it is worth paying attention only to data on industrial production, the growth rate of which should be accelerated from 1.7% to 2.2%.
In the US, there are quite a lot of interesting data that will have a significant impact on the state of affairs in the market. So, the data on the number of open vacancies, which should grow from 6 698 thousand to 6 880 thousand, can reduce fears due to rising unemployment, as people can quickly find work. The number of applications for unemployment benefits should be reduced by 37,000 due to a decrease in the number of primary applications per 1,000, and repeated by 36,000. So all the data on the labor market will clearly be positive for the dollar. However here, the commodity stocks in the warehouses of wholesale trade can show an increase of 0.2%, and given that their growth and so has been going on for more than a month, this is not a pleasant thing. The most important thing is that the inflation data comes out, and their data are preceded by producer prices, whose growth rates should accelerate from 3.1% to 3.2%. Inflation itself can accelerate from 2.8% to 2.9%, and although prices are growing faster than salaries, such an increase in inflation can convince many that the Fed will raise rates twice, before the end of the year.
Given all the forecasts, especially on inflation in the US, it is possible to expect a decline in the euro to 1.1675.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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