FX.co ★ Weekly review of EUR / USD as of 03/05/2018

The dollar continued to strengthen from the very beginning of the week, but in the second half of the previous week, the single European currency was able not only to win back losses, but even made an attempt to strengthen its positions. This became possible due to data on the labor market, as the unemployment rate was 8.6%. Expect such a result, but the previous data were revised for the better, from 8.7% to 8.6%. Thus, the situation on the labor market improves somewhat faster than expected. The data on inflation, of course, showed its slowdown, but this has long been expected and was ready. The inflation itself slowed from 1.3% to 1.2%, and the growth rates of producer prices from 2.2% to 1.5%. However, some support for the single European currency was provided by the data on the credit market, as the growth rate of consumer loans accelerated from 2.8% to 2.9%. In turn, the US statistics was quite ambiguous. In particular, sales of new homes fell by 7.8%, which is an extremely sharp decline. The orders for durable goods fell by 3.7%, and the preliminary data on stocks in warehouses of wholesale trade showed their growth by 0.7%. In general, the data increasingly indicate the threat of a crisis of overproduction. At the same time, the second GDP estimate for the fourth quarter showed an acceleration of economic growth from 2.3% to 2.5%, which inspires some optimism. However, personal incomes grew by 0.4% and expenses by 0.2%. Of course, the fact that the incomes are growing is good, but they have been growing faster than expenditures for several months in a row. So, there are signs of a decline in consumer activity, and, perhaps, this is the reason for the growth of risks in the economy.

Already published data on retail sales in Europe, which showed an acceleration in growth from 2.1% to 2.3%. However, it is expected that the final GDP data for the fourth quarter will show a slowdown in economic growth from 2.8% to 2.7%. Another negative for the single European currency will be the results of the meeting of the ECB Monetary Policy Board. Naturally, the parameters of the policy will remain unchanged, but it is likely that the ECB will declare a high probability of extending the quantitative easing program, which should be completed in September. Such a development of events will cause serious damage to the single European currency.

The main event of the week will be the publication of the report of the US Department of Labor on the state of the labor market. It is very likely that the unemployment rate will drop from 4.1% to 4.0%. In addition, it is expected that 200 thousand new jobs were created outside agriculture, as much as in the previous month. However, the growth rate of the average hourly wage may slow from 2.9% to 2.8%, which, however, will be compensated by an increase in the average length of the working week from 34.3 hours to 34.4 hours. But a lot of questions can cause data on the proportion of the workforce in the total population, which should decrease from 62.7% to 62.5%. It is due to this that the unemployment rate should decrease. Moreover, the growth in the average duration of the working week is not as strong as the slowdown in the growth of average hourly wages. In addition to the labor market, there are still many interesting moments. Thus, production orders should be reduced by 1.3%, and the ADP report may show an increase in employment in the private sector by 195 thousand, compared to 234 thousand in the previous month.

Thus, everything indicates a weakening of the dollar, but the results of the ECB board meeting will outweigh all the negative from US statistics. Moreover, the US plans to introduce import duties on steel and aluminum, as well as on European cars, clearly do not contribute to the determination of the ECB in terms of tightening monetary policy. So by the end of the week, the euro / dollar pair may fall to 1.2250.