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Monday opened with a fall in Asian stock indices and an increasing demand for bonds and defensive assets. The Shanghai Composite suffered the most, which fell by 5.5% immediately, and the reason for this is the unexpected tweet by Donald Trump, who at the end of the week, promises to increase import tariffs for Chinese goods. Trump intends to raise tariffs from 10% to 25% in the amount of 200 billion dollars and increase this volume in the "near future" by another 325 billion.

It remains unclear whether this is the result of unsuccessful negotiations on a trade deal between the US and China, or an attempt to exert additional pressure before signing the agreement. In any case, it is necessary to proceed from the fact that the change in foreign economic background determines the mood for the upcoming week and indicates an increase in panic and, as a result, an increase in demand for yen, gold, bonds, a drop in prices for raw materials, primarily oil.

Meanwhile, the US labor market report for April came out strong. The average wage growth was 0.2% m / m and 3.2% y / y, which is slightly worse than expected. The number of new jobs was 263 thousand.

Exchange Rates 06.05.2019 analysis

The decrease in the unemployment rate was partly due to a reduction in labor force participation to 62.8%, but in any case, the probability of a rate reduction, as required by the Fed, Trump, dropped to zero - under conditions of overheating of the labor market, such a move by the regulator is excluded, and therefore, the report should be considered generally positive for the dollar.

Nevertheless, the report will not have a long-term impact on the markets, since the main driver is the state of trade negotiations between the United States and China.

EURUSD

The rate of inflation in the eurozone unexpectedly increased in April to values significantly exceeding the forecast. According to preliminary data, inflation rose 1.7% against 1.4% a month earlier, while the base index rose from 0.8% to 1.2%.

Exchange Rates 06.05.2019 analysis

Perhaps, this surge is due to an increase in demand during the period of religious holidays, and in this case, inflation will decline again to its usual levels in May. The main trend in inflation is still stable and slightly exceeds the ECB forecasts, which is published in March.

In general, the situation in the eurozone begins to decline in favor of cautious optimism. The service sector is still growing steadily, and, despite the fact that PMI in the manufacturing sector is below 50p for three months in a row in April, there was an increase in new orders for the first time since December 2017. Meanwhile, GDP in 1 square also increased by 0.4%, primarily due to strong domestic demand, which indicates the limited influence of Brexit and negative factors in world trade. Italy came out of the recession, the German Ifo shows growth. As a whole, these factors reduce the likelihood that the ECB will take some additional measures to the previously announced ones.

On Monday, the final data on PMI for April was released. The indicator of investor confidence from Sentix and data on retail sales in March will be published. The euro was supposed to start the week with confidence, but the threat of a resumption of a trade war will contribute to the sales of EURUSD at least until the situation has been clarified. The resistance level is 1.1205, wherein higher growth is unlikely, while the target 1.1135 / 40.

GBPUSD

Services PMI increased to 50.4p in April against the failure of 48.9p last March. The transfer of Brexit to the end of October has noticeably reduced tensions. The internal political struggle in Great Britain has a limited impact on the economy at the current stage, and the Bank of England has no obvious reasons to change the monetary policy.

In 2018, against the background of strong inflation, BoE was forced to maintain moderately hawkish rhetoric to keep the prices down. However, in the current circumstances, the need for this has disappeared - annual inflation has been below 2% for three months in a row.

The pound looks pretty confident under current conditions. On Monday, in the UK output, the volatility is assumed to be low. The level of support is at 1.3101 / 06, while the target is at 1.3195.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Kuvat Raharjo,
Analytical expert
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