The European currency showed a strong sideways movement yesterday, while the British one suddenly remembered about Brexit. In particular, the European Commission recalled this topic, which intends to initiate legal proceedings against the UK due to the alleged violations of the trade agreement of the said country. However, London denies such accusations. Even so, we should not make any rush conclusions, since this trial will be quite long and extremely difficult. Nevertheless, the grounds remained, and the pound slightly weakened.
Today's key event will be the publication of US retail sales data, whose growth rate is expected to slow down from 7.4% to 5.5%. To some extent, this is a repetition of the European scenario, when retail sales literally collapsed after a sharp inflation growth. In general, things in the US slightly differ, as inflation has grown somewhat stronger than expected, but retail sales are expected to grow. However, it is clear that their growth can slow down, which is happening amid the increase in consumer prices.
Such a situation is worsened by FOMC's meeting tomorrow, during which the situation with inflation will naturally be considered. And to consider it in isolation from consumer activity is somehow not very productive or meaningless. At the same time, it should be noted that the expected scale of the slowdown in retail sales growth is much more significant than the inflation growth. Here, we are talking at least about a decline in company profits, which can cause a halt in the recovery of the labor market, and even lead to a new round of unemployment growth. If so, the Fed will have to do something about it.
Retail Sales (United States):
However, one should not expect the US dollar to sharply collapse. This is because the overall situation in the United States looks much better than in Europe. Moreover, the national currency may be supported by the industrial production data, which is currently down by -1.8%. This decline can be replaced by an increase of 0.9%. It is important not only the fact that the decline changed to growth, but also the fact that the last time the US industry showed growth was as early as August 2019. As for Europe, the industry is still declining, which continues much longer than in the United States.
Industrial Manufacturing (United States):
The Euro currency formed a narrow range of 1.1910/1.1940 on the market yesterday and the quote develops near it. We can assume that this is a cumulative process, which may lead to a natural surge of speculative activity. The trading method for this fluctuation is based on the tactic of breaking a particular border.
The GBP/USD pair adheres to the downward interest, which resulted in the breakdown of last Friday's local low. We can assume that if the price holds below the level of 1.3850, the price of the pound will further weaken.