FX.co ★ Weekly review of the EUR/USD dated June 9, 2018

Over the past week, the single European currency was able to win back part of the decline, which it experienced the previous seven weeks. Almost a two-month depreciation stopped and was replaced by a hint of correction. It is curious that all this took place against the backdrop of an almost empty macroeconomic calendar, and with European data being mostly not positive. Thus, the final data on GDP for the first quarter confirmed the fact of a slowdown in economic growth from 2.8% to 2.5%, which fully coincided with preliminary estimates. The rate of growth in producer prices slowed from 2.1% to 2.0%. Only retail sales could please investors, as their growth rates accelerated from 1.5% to 1.7%. Thus, the only thing that could justify the growth of the single European currency is the weak US statistics. But there were no significant data from the USA either. The same ones that came out were of a completely versatile nature. In particular, the number of open vacancies increased from 6 633 thousand to 6 698 thousand. At the same time, the number of applications for unemployment benefits increased by 20 thousand, which, however, is less than the growth in the number of open vacancies. So there is no reason to fear because of the possible increase in unemployment. However, production orders decreased by 0.8%, and commodity stocks in wholesale warehouses grew by 0.1%. Given that the last time the inventories were reduced only in November of last year, their growth, coupled with a reduction in orders, increasingly points to the risks of the crisis of overproduction. So we can conclude that, in spite of the general negative nature of the data coming out, the dollar is already so significantly overbought that investors are much more inclined to strengthen the single European currency.

Let's be honest, the main events of the week will be the results of the meetings of the Federal Open Market Committee of the Federal Reserve, as well as the ECB Monetary Policy Board. The Fed is expected to raise the refinancing rate from 1.75% to 2.00%. In fact, this should justify the almost two-month growth of the dollar, and no rapid growth of the dollar after this will follow. The market will not accept any other result. More precisely, it will respond to it by the rapid decline of the dollar. But this is extremely unlikely, since something extraordinary must happen to the Fed to abandon its plans to tighten monetary policy. So from the Fed, no one is waiting for surprises, unlike the ECB, which can really surprise the market. The fact is that the European Central Bank is waiting for confirmation of speculations that after September the program of quantitative easing will continue to operate. But the question is that the preliminary data showed the acceleration of inflation from 1.2% to 1.9%, and under such conditions it is already possible to safely stop the program and think about the future increase in the refinancing rate. The problem is that the final data on inflation will not come until the day after the ECB board meeting, and it is possible that the regulator will remain cautious. Most likely, there will be no sharp statements that against the backdrop of a virtually confirmed increase in inflation will be regarded as a weakness. So, despite the good expectations for inflation, the results of the ECB meeting will rather have a negative impact on the single European currency.

But not only the meetings provide good news during the upcoming week. The topic of macroeconomic statistics should never be forgotten. As already mentioned, Europe is waiting for an actual confirmation of inflation, which, naturally, will help the single European currency, but only at the very end of the week. In addition, in Europe, it is forecasted a slowdown in industrial production growth from 3.0% to 2.9%, which, on the eve of the ECB meeting, could have a significant negative impact on the single European currency. In the US, inflation is also expected to accelerate, however, from 2.5% to 2.6%. And the growth rates of producer prices should accelerate from 2.6% to 2.7%. Given that these data will come just before the meeting of the Federal Open Market Committee, we can safely wait for the growth of the dollar. However, if in Europe good data comes after the ECB board meeting, then in the US it's the other way around. Quite weak data is expected just after the announcement of the results of the meeting of the Federal Commission for Open Market Operations. It's about retail sales and industrial production. The growth rate of retail sales should slow from 4.6% to 4.4%, and industrial production from 3.5% to 2.7%.

Most likely, most of the week the single European currency will lose its positions, but at its very end it will be able to improve its position. So it may end the week at the level of 1.1800.