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28.05.201812:07 Forex Analysis & Reviews: Weekly review of the EUR / USD dated May 28, 2018

As expected, the dollar continued to strengthen, despite excessive overbought. There is a temptation to write off everything on the content of the minutes of the ECB meeting on the monetary policy, since it implies that the program of quantitative easing will be extended. True, it is not yet clear how long. However, in addition, it is worth paying attention to the data on the index of business activity in Europe, which showed a decline on all fronts. Thus, the production index decreased from 56.2 to 55.5, and in the service sector from 54.7 to 53.9, so that the composite index fell from 55.1 to 54.1. And although this is preliminary data, they do not foretell anything good, and the business feels the deterioration of the situation. Meanwhile, similar data in the US showed an increase in the production index from 56.5 to 56.6, in the services sector from 54.6 to 55.7, and the composite index from 54.9 to 55.7. Also, the text of the minutes of the meeting of the Federal Commission for Open Market Operations practically removed doubts that the Fed will raise the refinancing rate during the next meeting. This news was enough for the dollar to continue to strengthen, and market participants ignored other statistics. In particular, sales of new homes decreased by 1.5%, and in the secondary market by another 2.5%. Also, the number of applications for unemployment benefits increased by 40,000. But the ECB's indecisiveness in the compartment with tightening of the policy of the Fed is doing its job.

This week in Europe, there is very little data, but if you look at the forecasts, they are purely positive. In particular, the growth rate of consumer lending should accelerate from 3.0% to 3.2%, and inflation can grow from 1.2% to 1.6%. The growth of inflation, and so significant, should be the occasion for correction, albeit not great. Moreover, the strengthening of the single European currency will be short-lived, and everything may end with further strengthening of the dollar. The fact is that the second estimate of GDP growth rates for the first quarter is likely to show even greater acceleration of economic growth rates, which will add several points to the dollar. But more importantly, 185,000 new jobs could be created in the past month, compared with 164,000 in the previous period. And all this should be accompanied by an acceleration in the growth rate of the average hourly wage from 2.6% to 2.7%.

Thus, the single European currency, although there are reasons for growth, they are extremely short, since the US statistics are no worse. Moreover, the growth of inflation in Europe still does not mean anything, since it has repeatedly grown, and then again slowed down, so that the reaction of investors will be moderate. In the best case, the week will end at the same values from which it began, around 1.1650. There is a high probability that the single European currency will drop to 1.1600.

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Mark Bom,
Analytical expert of InstaSpot
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