Core inflation in the US rose to 2.1% y/y in April against 2.0% y/y a month earlier, overall growth was slightly below expectations, but did not cause any noticeable reaction in the markets.
At the last FOMC meeting, the topic of inflation sounded quite heavy, because inflation is one of two parameters, along with the labor market, on which the Fed is focused on when it formulates monetary policy. The slowdown in inflation increases the chances of a rate cut, data published on Friday did not make any changes in market expectations.
Much more attention is paid to the markets of the trade war between the United States and China, which has entered an active phase. The United States has raised tariffs for Chinese imports worth $200 billion, moreover, Trump has already given the order to begin preparations for the transfer to higher tariffs and the entire remaining volume of imports.
The markets have so far reacted rather restrained, as they take into account the high probability that an agreement will be reached in the near future, and Trump's impulsive step is seen as an attempt to exert coercive pressure in order to achieve better results in the negotiations.
The United States is losing room to maneuver, unlike China, which can delay negotiations for an arbitrarily long time. According to estimates by the Congressional Budget Office (CBO), the federal budget deficit was 531 billion dollars in the first 7 months of the 2019 fiscal year, which is 145 billion more than a year ago, and this was due to the fact that part of the payments of 44 billion could be moved to a later date. In total, a deficit of 896 billion is expected in 2019, the growing deficit forces the US government to use all available methods to increase revenues, so the pressure on China is unlikely to decrease in the foreseeable future, despite the results of the negotiations. The attempt to accuse China of disrupting the negotiations is just a ploy to hide the true reasons for such haste on the part of the United States.
EURUSD
Europe is approaching the start date of the Parliamentary elections, which will start on May 23, and for some time political factors could become dominant in assessing the prospects for the euro.
The economic conditions index ZEW will be published on Tuesday, the latest data on the state of the German economy gives reason for some optimism - industrial production increased in March, exports grew, so the economic component of the euro is on the side of the bulls. At the same time, the escalation of the trade war and the approach of the political battle season force investors to exercise caution, which can lead to a decline in stock markets amid profit taking and the transfer of capital to defensive assets, which will put additional pressure on the euro.
EURUSD is at the upper border of the downward channel, the probability of going down to the support of 1.1110 looks higher than the possibility of growth. The nearest resistance 1.1253 and 1.1264 are more logical to use for selling
GBPUSD
UK industrial output rose by 0.7% in March, and annual growth also increased from 0.4% to 1.3%. The processing industry grew even faster - from 1.2% to 2.6%. Growth was recorded for the first time since October 2018, while the overall production index is still lower than before the 2008 economic crisis.
In general, macroeconomic data that was published on Friday in favor of the pound - preliminary data on GDP in Q1 reached expectations, a positive factor can be considered an increase in investment by 0.5% after 5 quarters of a continuous decline, and the trade deficit in March slightly decreased.
The sustainability of positive changes was immediately called into question by NIESR - in its opinion, the growth rate of GDP inclusively decreased from 0.5% to 0.4% over the last 3 months to April. On Tuesday, a report on the UK labor market will be published, the forecasts are still neutral, and in general they fully correspond to the cautious position of the Bank of England, which is reflected in moderate forecasts for GDP and inflation, published in early May.
The pound is trading neutral with a slight fall, going beyond the range of 1.2966 ... 1.3046 is unlikely. The decline is slightly more likely, so attempts at growth can be used for selling.
