Let's face it, the Federal Reserve has met all the market's expectations. Did investors expect that all the difficulties in the economy and its uncertain recovery would be attributed to the coronavirus? Of course. This is exactly what was said. Faster inflation and a noticeable decline in consumer activity cause concern? Naturally. The Federal Reserve System said that too. Does this combination of factors force the regulator to think about the need to tighten monetary policy? Necessarily. So, Jerome Powell also raised this issue. Everything is exactly as expected. Then why did the dollar fall sharply? The point is that the Federal Reserve System did all this in a somewhat peculiar manner. In fact, we were told that interest rate hikes should not be expected before 2023. But the inflationary dynamics and the decline in retail sales hint that it is worth doing this already this year. Yes, but the Federal Reserve takes a slightly different view. And this was a complete surprise for the market. Nobody was ready for this. In general, a panic sale of portraits of dead American presidents began.
At the same time, throughout yesterday, the market simply ignored any macroeconomic data. Although with inflation in the eurozone, this was quite expected. After all, the final data on inflation only confirmed the preliminary estimate, and inflation remained at the same level of 0.9%. But the market has long put this fact in the value of the euro. So, nothing new has happened. Nothing has changed.
Inflation (Europe):
The data on construction in the United States, with all due respect, is not so important. Although they turned out to be quite interesting. For example, the volume of construction of new houses, instead of growing by 2.3%, decreased by -10.3%. To put it mildly, this is quite a lot. The number of issued building permits decreased by -10.8%, which is slightly more than the forecast of -7.2%. This means that the volume of construction may continue to decline. Such news is somehow not conducive to a good mood.
Number of Building Permits Issued (United States):
Today, the Bank of England will be talking about the fact that the coronavirus is to blame for everything. More precisely, the BoE will completely repeat everything that was recently issued by the European Central Bank, and that interest rates will remain at the current, extremely low levels for a long time. That's all. But the fact is that the British economy has not yet fully experienced all the delights of the trade agreement signed with the European Union at the end of last year. So it's just too early to draw any conclusions about the extent of the damage. Thus, we need to wait a little longer. And the Bank of England will remain cautious.
But right now, the result of the investigation of the special commission of the European Medicines Agency (EMA) regarding the AstraZeneca vaccine is more important, since this issue is directly related to the pound. A couple of days ago, the pound fell sharply just because of the decision of several European countries to suspend the use of this vaccine due to safety threats. Quite frankly, the content of the report will be largely supportive of the vaccine itself. The EMA itself has quite officially stated that the benefits of the vaccine outweigh any possible negative consequences. The World Health Organization (WHO) has spoken in much the same spirit. So the content of the report is quite predictable. But what matters here is that such conclusions will not allow European countries to demand refunds and damages from the manufacturer. If this happened, the largest British pharmaceutical company would be on the verge of bankruptcy, which London cannot allow. This means that all losses would be covered by the government of the United Kingdom. And since the recent weakening of the pound was unfounded, the market will inevitably correct this mistake.
However, everything related to the vaccine concerns only the pound. The euro will be more focused on data on claims for unemployment benefits in the United States. And if the pound should grow more quickly, then the euro may well fall in price. After all, the number of initial applications should be reduced from 712,000 to 675,000. Continuing claims may decrease from 4.144 million to 4 million. That is, the American labor market is still recovering. In other words, the situation is improving somewhat, which is good news.
Continued Claims for Unemployment Insurance (United States):
Over the past day, the euro showed high activity, as a result of which the quotes returned to the area of the psychological level of 1.2000. It can be assumed that the price fluctuates temporarily within the key level, where, depending on the price-fixing, the subsequent move in the market will be clear. The trading principle will depend on one of the Bounce/Breakout scenarios from the level of 1.2000.
The GBP/USD currency pair has a synchronous fluctuation with the price movement within the important price area 1.3950/1.4000/1.4050. In this situation, everything will depend on whether the quotes will manage to stay higher than 1.4015 because otherwise, we will be stagnant.