15.02.2019 10:38 AM
EUR and Fed: In euro, there is still a chance for correction. US statistics disappoints Fed

The US dollar fell against the euro and several other world currencies yesterday after the release of more than weak reports indicating a slowdown in the US economy at the end of last year and at the beginning of this year.

According to the US Department of Labor, the number of Americans who first applied for unemployment benefits has increased. The data is of a weekly nature and is not much taken into account by investors when assessing the overall state of the labor market.

According to the report, the number of initial claims for unemployment benefits rose by 4,000 in a week, from February 3 to 9. Economists expected the number of applications to be 225,000. The number of secondary applications for unemployment benefits in the week from January 27 to February 2 increased by 37,000 and amounted to 1,773,000.

The US dollar was under pressure after a report indicating a sharp drop in retail sales, which are the main driver of economic growth.

According to the US Department of Commerce, retail sales in the United States in December 2018 fell immediately by 1.2% compared with the previous month, reaching $ 505.8 billion. Economists and analysts, on the contrary, expected a 0.1% increase in sales in December. Such a serious decline, of course, will affect the final growth rate of the economy at the end of 2018. In December, retail sales grew by only 2.3% over the same period last year.

Producer prices also failed to please the market, as they declined, indicating a decrease in inflationary pressure at the beginning of this year.

According to the US Department of Labor, PPI's producer price index fell 0.1% in January 2019 compared with the previous month. The base index, which does not take into account volatile categories, increased by 0.2%. Economists had expected the general index in January to show an increase of 0.1% compared with the previous month, while the base index would add 0.2%. Compared with the same period of the previous year, the index rose by 2% in January.

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The main decline was due to the fall in energy prices, which for the designated period fell 0.8%.

Inventories of US companies declined in November, which is also a bad sign for the economy. According to the US Department of Commerce, inventories fell by 0.1% to $ 1.981 trillion. Economists had expected stocks in November to show a 0.2% increase.

The main decline was due to lower stocks in the retail and manufacturing sectors.

Yesterday's speech by US Federal Reserve representative Lael Brainard did not surprise the markets. Brainard said that the December drop in US retail sales attracted particular attention from the Fed, which reinforces the downside risks to GDP growth. However, in her opinion, the US economy has a strong impetus for growth in the future, and the current Fed policy corresponds to the situation that is now observed in the world. Brainard, like her colleagues, believes that it is necessary to wait sometime before making another decision on interest rates.

As for the technical picture of the EURUSD pair, the hope remains for buyers, especially if today the fundamental data on the American economy are just as weak as yesterday.

A return to the resistance level of 1.1300 will be a good signal to the growth of risky assets, which will lead to a test of highs of 1.1340 and 1.1390. If the pressure on the euro continues, the breakthrough of the 1.1260 minimum could put buyers in a very difficult position. Below this range, only support levels around 1.1220 and 1.1170 are visible.

Jakub Novak,
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