Forex Analysis & Reviews: EURUSD: US GDP satisfied the markets, but Trump is not enough
time 29.07.2019 09:57 AM
time Relevance up to, 30.07.2019 09:44 AM

The US dollar continued to strengthen against a number of world currencies, especially against the British pound, which is under serious pressure due to Brexit, after it became known on Friday about the final formation of the British Cabinet of Ministers, which mainly includes people who are set to a tough scenario for Brexit.

The European currency also missed a number of positions after the release of a good report on the growth of the US economy in the 2nd quarter of this year, which was due to a major increase in consumer spending.

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According to the US Department of Commerce, in the 2nd quarter of this year, the US economy grew by 2.1% per annum after growing by 3.1% in the 1st quarter of this year. On the one hand, there is a clear slowdown due to the growth of foreign trade tensions and the slowdown of the world economy. On the other hand, the indicator was much better than the forecasts of economists who expected GDP growth to be 1.8% per annum.

The main problem, which now significantly affects the slowdown in economic growth in the United States, is a sharp drop in investment by companies. Thus, the capital investments of companies in the 2nd quarter of 2019 decreased by 0.6% after an increase of 4.4% in the 1st quarter.

However, as noted above, the sharp increase in consumer spending has provided significant support to the economy. Americans continue to spend money and make purchases due to very low unemployment and rising incomes. According to the data, consumer spending increased in the 2nd quarter of this year by 4.3% per annum after an increase of 1.1% per annum in the previous quarter. Government spending also increased by more than 5.0%.

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Immediately after the release of the report, the American president made several statements, noting the fact that GDP growth is not bad, given the Fed's interest rate policy, but once again blamed the Central Bank for weak economic growth after the first quarter. And all because of the policy of high-interest rates. Trump called the Central Bank of the United States "a cargo hanging on our neck."

As for the data on the price index of spending on personal consumption of RFE, in the 2nd quarter of 2019, it increased by 2.3% per annum. The US Department of Commerce said that this is the highest value for more than a year. The core index rose by 1.8%.

If we take together Friday's reports, they are very good news for the Federal Reserve System, which in the course of a two-day meeting, the results of which will be known on Wednesday, may signal a decrease in interest rates in the near future. The main problem is low inflation, which falls short of the target of 2%, as well as foreign trade relations, which constrain the potential growth of the economy, which negatively affects business confidence.

On Friday, a report was also published, according to which the indicator of activity in the service sector in the zone of responsibility of the Federal Reserve Bank of Kansas City in July of this year decreased. Expectations for future activity also deteriorated.

According to Fed-Kansas City, the index for services in July fell to -1 point after 1 in June this year and 15 points in May.

As with a number of other economic indicators, the main pressure on the index was exerted by the increased uncertainty around the economic prospects due to weak domestic demand and problems in foreign trade.

On Friday, little support was provided by statements by Larry Kudlow, director of the White House National Economic Council, who assured that the United States, unlike other countries, would not intervene in the markets in order to lower its currency exchange rate. It has long been thought that while Trump cannot get the Fed to lower interest rates, the White House administration may go for a number of tweaks to try to lower the dollar in some other way.

As for the current technical picture of the EURUSD pair, the further prospect of its decline remains quite high, but traders will gradually take profit at each new minimum before a very important meeting of the US Federal Reserve.

Support for the bulls will have a large level of 1.1100, while the upper resistance range is seen in the area of 1.1190. Most likely, in this range and trade will unfold at the beginning of this week. If the bears fail to break below the intermediate level of 1.1120, the bulls may try to break above the resistance of 1.1150, from which the main downward movement was formed last Friday.

Jakub Novak,
Analytical expert of InstaForex
© 2007-2022
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