The British pound continued its active growth against the US dollar on Tuesday, after the EU negotiator Michel Barnier made a statement on the possible conclusion of a Brexit deal between the UK and the EU.
Sources have revealed that Boris Johnson is on the verge of a Brexit deal after the Prime Minister yesterday made serious concessions to EU demands over the Irish border. According to senior European and British officials, the negotiating teams have agreed that the customs border will pass through the Irish Sea. This will create customs controls, but the customs rules for Ireland will be the same as in the EU, and the customs rules for Northern Ireland will remain the same as in the UK. Let me remind you that similar conditions were rejected by former Prime Minister Theresa May.
But don't forget that Johnson will still have to win in parliament – including opponents in the Democratic Union Party (DUP) and uncompromising Tory Brexiters (opponents in Johnson's most conservative party).
In any case, it is necessary today to wait for the text of the agreement on Brexit, which many are waiting for, and after the appropriate reaction of parliamentarians and the market as a whole, it is already necessary to decide on further purchases of the pound. There is very little time, since tomorrow the EU summit will begin, at which the "last" proposal of Boris Johnson will be discussed. And only with the approval of the EU leaders will it be possible to switch to a vote in the British Parliament.
As for the technical picture of the GBPUSD pair, it is best to consider purchases after the downward correction of the trading instrument in the area of the support levels of 1.2680 and 1.2550. However, a breakthrough in the resistance of 1.2790 will return buyers to the market again, which will lead the pound to new highs in the areas of 1.2860 and 1.2980.
Yesterday's data on the US economy, as well as statements by representatives of the Federal Reserve System, did not support the US dollar.
According to the report, the activity of manufacturers in the area of responsibility of the Federal Reserve Bank of New York in October this year increased slightly due to increased optimism about business conditions. The report indicated that the manufacturing index in October was 4 points against 2 points in September. Economists had expected the index to be 0.8 points in October. More than 30% of respondents reported improved business conditions.
But the report of the Federal Reserve Bank of New York in the fall of long-term inflation expectations is contrary to the expectations of the central bank. According to the monthly Fed-New York survey, inflation expectations for the three years ahead fell to 2.4% in September from 2.5% the previous month. Inflation expectations for the year ahead rose to 2.5% from 2.4% in August.
As noted above, the Fed representatives continued to tune the market for another reduction in interest rates. If on Monday, Jim Bullard spoke about this, then yesterday, Mary Daly gave a similar speech.
In her speech, the Fed representative said that Fed rate cuts should contribute to continued economic growth, although the economy shows many good signs. In her opinion, lowering rates is necessary, because, despite low unemployment and rising consumer spending, the Fed is not able to sustainably achieve the inflation target. The main risks the Daly attributed to trade and the slowdown in global economic growth.
Yesterday's data on sales in US retail chains remained unnoticed by the market. The report by the Retail Economist and Goldman Sachs indicated that the sales index in US retail chains for the week from October 6 to 12 fell to 3.4%, while for the same period in 2018 rose by 1.6%.
As for the technical picture of the EURUSD pair, it remained unchanged. Bulls will continue to fight for the resistance of 1.1040, consolidation above which can provide risky assets with new buyers, but much depends on the report on inflation in the eurozone, the release of which is scheduled for the first half of the day. If the pressure on the euro returns, and this may happen after another unsuccessful attempt to break the resistance of 1.1040, then long positions can still be returned from large support in the area of 1.1000 or slightly lower, at the local minimum of 1.0970.