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Forex Analysis:::2019-05-17

Markets are trying to believe in the strength of the American economy: we expect a continuation of the decline in EUR/USD and GBP/USD pairs

According to the data on economic statistics, the number of building permits issued in the United States increased by 0.6% in April against a 0.2% decrease in March and a forecast of a 0.5% increase. In quantitative terms, it rose to 1.296 million versus 1.288 million. At the same time, the volume of construction of new homes increased to 1.235 million from 1.168 million last month. In percentage terms, the figure added 5.7% against 1.7%.

The so-called published values of the initial applications for unemployment benefits also went to hand. They fell to 212,000 from 228,000 over the past week and the investors were completely pleased with the data on the index of manufacturing activity from the Federal Reserve Bank of Philadelphia. The index soared in the current month to 16.6 points against the April value of 8.5 points and expectations of its growth to 10.0 points.

Of course, the market, which missed economic benchmarks, reacted to this news with a convincing rise in the value of the US dollar against all major currencies without exception. By and large, this market dynamic can be described simply as a reaction to strong statistics and for some reason, an information guide for conducting local transactions.

In general, observing the general trend that has recently manifested itself in the foreign exchange market, we can say that while maintaining the generally positive sentiment regarding the dynamics of US economic growth, the dollar can receive support. On the one hand, it will win against major currencies because the central banks of competing currencies will clearly seek to weaken their currencies in order to support local exports. On the other hand, the preservation of positive dynamics may force the Fed to go for an increase once again in interest rates by the end of this year.

Of course, such a scenario is not obvious. But if trade negotiations with China still reduce the high risks for the American economy and support it, then the Fed will have to go to the promise of raising borrowing costs as early as December 2018, which, given the current situation in the foreign exchange market will be a supporting factor for the US currency.

Forecast of the day:

The EUR/USD pair is consolidating in a wide range of 1.1125-1.1260. It can continue the local decline to 1.1125 if the data on consumer inflation in the eurozone published today does not show growth above forecasts.

The GBP/USD pair is trading lower in the wake of the political crisis in Britain amid Brexit. Maintaining this negative trend will put pressure on the pair and its decline below 1.2780 may lead to a further fall of the pair to 1.2700.

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Pati Gani
Analyst InstaForex
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