The British pound resumed its growth after European Commission President Jean-Claude Juncker said in an interview that the European Union and the UK can agree on the country's withdrawal from the EU. Despite the release of weak fundamental data on retail sales, and concerns of the Bank of England about the slowdown in economic growth, the pound continued to grow on expectations that an agreement on Brexit will still be reached and the British will leave the EU on October 31.
Juncker also said that in the absence of an agreement, the consequences would be catastrophic, adding that he would do everything to make a deal. The President of the European Commission also said that he received proposals from the UK government on the deal, but he has not yet had time to study them, promising soon to cover this point in more detail after a detailed study of the document.
This was enough for buyers of the pound, who, as I noted in yesterday's forecast, need to push the pound above the resistance of 1.2510, which led to the demolition of sellers' stop orders and more active purchases from large bulls. At the moment, the target is to break the resistance at 1.2560, which will lead to a further active upward trend towards the highs of 1.2600 and 1.2640. However, it should be noted that the GBPUSD pair has approached sufficiently large resistance levels and further growth, without real solutions for Brexit, will be very difficult.
EURUSD
The EURUSD pair remains in a narrow sideways channel, and yesterday's news about the shortage of the US dollar in bank accounts did not lead to special market changes, as did the release of several important fundamental statistics.
As it became known, the Federal Reserve Bank of New York yesterday again poured another $ 75 billion into the financial system as part of repurchase transactions, which provides for the purchase of securities with their redemption in a day. This was done to provide several applications and reduce the liquidity deficit that has formed in the US money market. It should be noted that not everyone managed to distribute the money. In total, banks filed applications worth about $ 85 billion, offering treasury and mortgage bonds as collateral.
Many economists have already raised the subject of the Federal Reserve's return to the asset-purchase program, which Powell briefly mentioned on Wednesday at a press conference after a central bank meeting. The Fed Chairman then said that the need to resume the natural build-up of the balance sheet will arise earlier than everyone thought, adding that we will carefully study this issue and discuss it at the next meeting.
It will not be clear whether the three interventions that the Fed conducted this week to calm the alarmed money market will suffice. Therefore, I recommend focusing on interest rates on overnight loans, the growth of which will indicate a lack of liquidity on the part of financial companies.
As for the fundamental statistics released yesterday, it is worth noting that the number of Americans who applied for unemployment benefits for the first time increased slightly last week.
According to the US Department of Labor, the number of initial jobless claims for the week of September 8-14 rose by 2,000 to 208,000. Economists had expected the number of applications to be 215,000.
The current account deficit in the US balance of payments has slightly narrowed. According to the US Department of Commerce, the deficit in the 2nd quarter of 2019 decreased to $128.19 billion compared to $136.19 billion in the 1st quarter. Economists had expected a deficit of $128.0 billion in Q2.
Sales in the secondary housing market also rose, indicating some recovery in the activity. According to the National Association of Realtors, sales in the secondary housing market in August 2019 increased by 1.3% and amounted to 5.49 million homes per year. Economists had expected sales to fall by 1.1%. Compared to the same period of the previous year, sales in August increased by 2.6%.
A report from the Conference Board was also released yesterday, which indicated that the leading indicators index in August 2019 remained at 112.1 points, while economists had expected a minimum increase to 112.2 points. Conference Board economists noted that the dynamics of the leading indicators index is fully consistent with the state of the economy.
As for the technical picture of the EURUSD pair, it remained unchanged.
Only a breakthrough of the maximum in the area of 1.1080 will cause larger purchases of the trading instrument, which will lead to the renewal of the levels of 1.1110 (last week's maximum) and 1.1150. In the scenario of EURUSD decline, the support will be at the level of 1.0990, and larger areas are located at the lows of this month in the area of 1.10950 and 1.0920.
