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22.08.2019 08:40 AM
EUR and GBP: the Fed took a wait-and-see position on interest rates. The meeting of Johnson and Merkel have failed

Yesterday, the whole focus was shifted to the publication of the minutes of the July meeting of the Federal Reserve System, which did not clarify anything, as the approach and opinions of the Fed leaders were divided.

The published protocols indicated a flexible approach and the importance of incoming data when making decisions on rates in the future, but most of the leaders of the Fed considered lowering rates in July, adjusted in the middle of the cycle and the current calibration of monetary policy. Meanwhile, uncertainty regarding trade policy is considered to be increased, which will continue to maintain tension in the Fed's approach. Also, one of the main arguments for lowering interest rates was the slowdown in economic growth and low inflation.

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As for the decisions of the Fed leaders, some preferred to lower the rates by 50 bps, while other leaders preferred to keep the rates unchanged. Many expressed concerns that lower rates could affect financial stability.

The protocols also noted the improvement in economic data since the previous meeting, and many Fed leaders consider the weakness of inflation in early 2019 a temporary phenomenon. Also, concerns about risks to the economy decreased compared to June this year.

As mentioned above, the publication of the protocols did not clarify the situation with the further course aimed at reducing interest rates, which kept the market in a narrow side channel. On the other hand, such a report "plays" on the side of buyers of the US dollar, since the European Central Bank may make a similar decision this fall, which will increase pressure on risky assets.

Yesterday, a report was published on sales in the secondary housing market in the United States, which accelerated sharply in July this year. According to the National Association of Realtors, sales in the secondary housing market in July this year increased by 2.5% and amounted to 5.42 million homes per year. Economists had expected sales to rise by 2.3%. Compared to the same period of the previous year, sales in July increased by 0.6%. The NAR noted that sales growth is associated with low-interest rates, as well as a strong labor market.

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A report by the US Budget Office was also released yesterday where forecasts for a 10-year budget deficit were raised by $809 billion. This was mainly due to the two-year budget agreement that had been reached earlier. Usually, the increase in the budget deficit limit has always been calculated only for a year. The office also noted that the budget deficit will average 4.7% of GDP against 4.3% in May and according to the forecast, the national debt will be 95% of GDP in 2029 against 92% (May forecast).

As for the technical picture of the EURUSD pair, it has not changed at all. The next goal of the bears will be to update the lows of last week with the test of the support levels of 1.1060 and 1.1030. If the bulls attempt to build an upward correction in the pair, it is best to consider short positions in the trading instrument from the upper border of the side channel of 1.1130. A larger resistance level is the area of 1.1160.

GBPUSD

Yesterday's statements by British Prime Minister Boris Johnson that the UK wants to withdraw from the EU with the Brexit agreement, but the issue of the Irish border should be excluded, put pressure on the British pound after a number of EU representatives said that the deal on Brexit will not be approved without the Irish border. Johnson met with German Chancellor Angela Merkel in Berlin, saying that there is a huge space to reach an agreement, to which the Chancellor said she wanted to listen to his ideas.

Many experts hastened to note that Johnson's rhetoric is outdated, and, despite the mild tone of Merkel's statements, negotiations on an additional agreement are unlikely to resume.

As for the technical picture of the GBPUSD pair, the upward trend is limited by the resistance of 1.2175, the breakthrough of which will build a new wave of growth and lead to the update of the highs in the area of 1.2220 and 1.2270. But above this range is the medium-term border of the downward channel, to get beyond which without a positive outcome of the situation with Brexit will be impossible.

Serious pressure on the pound will return only after breaking the lower limit of 1.2040. Until that time, buyers will enter the market every time the pair drops and approaches this large support range.

Jakub Novak,
Analytical expert of InstaForex
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