The euro/dollar rose again above the resistance target of 1.1000 to 1.1035. In the future, corrective growth may depend on the ability of applications to cross the current boundary of a strong level of resistance.
The next meeting of the Fed will be crucial for the currency market, where the regulator will be able to lower the interest rate. At the same time, the euro/dollar exchange rate is expected to continue to rise to local resistance by 1.1100 and 1.1170.
Goldman Sachs experts believe the 100-year Federal Reserve will follow the European Central Bank's template and begin a new phase of the securities procurement program by the end of the year. Fed chairman Jerome Powell said last week that the Central Bank's assets will be expanded. This decision has not yet been taken into account by the markets and, therefore, can subsequently affect the value of the dollar – lead to a significant fall in it. Currently, investors at the meeting at the end of October estimate 85% probability that interest rates will fall. Another 40 percent believe the Fed will cut the interest rate in half by the end of 2019. The results of the last meeting show that representatives of the Federal Reserve still do not find a common decision on how to proceed.In the forecasts that accomp
anied the declaration in September, seven of the 17 members of the Fed Board they said they expected further rate cuts before the end of the year. Five representatives believe that there is no need for further reductions, while five others expect rates to rise before the end of the year. Fed Chairman Powell is a supporter of those who believe that the decline is a necessary insurance to support the growth of the American economy. Powell said again last week that the central bank would act as needed to support the country's economy.
Some Fed members still believe that there is no need to cut rates between moderate economic growth and unemployment to a 50-year low. The September increase in consumer prices in America was unchanged at 1.7%. Core inflation also remained unchanged at 2.4%. U.S. manufacturing activity has fallen rapidly, which could have an impact on the Federal Reserve's decision. Minutes of the meeting showed that council members as a whole began to think more about commercial risks and other constraints to economic development, such as declining global growth and uncertain Brexit factors. Some see further interest rate cuts as a safety factor against risks, while others believe that the current outlook for the U.S. economy does not affect the rate cut.Our forecast for
the coming week is expected to continue. euro/dollar increases to resistance levels of 1.1050, 1.1080, 1.1100, 1.1140 and 1.1170. Most likely, the increase in the correction will be completed in the resistance range of 1.1170, and the quotes will move into the recession phase.
The British pound rose sharply last week amid optimism on Brexit. The pound/dollar exchange rate jumped about 300 points to 1.2646.
The European Union and the British Kingdom have agreed to continue negotiations in the coming days in preparation for the morning meeting of the Council on Common Affairs, which is due to take place on Tuesday. Last week, British Prime Minister Boris Johnson met with Leo Varadkar, Prime Minister of Ireland. The meeting involved a discussion of a possible solution. Following the meeting, the premiers of both countries indicated that they were considering reaching an agreement, which led to a rapid increase in the value of the British currency. Donald Tusk, the head of the European Council, noted that in the near future there is a possibility to reach a decision with the deal. Britain could make an EU offer for a limited free trade agreement. Such a decision would eliminate all tariffs if Brexit were to take place without an agreement. However, no decision has yet been made on a key issue – the Irish border.
At the same time, Britain's economic performance continues to decline. Industrial production fell by 1.8% in September and manufacturing production by 1.7%. Indices for the second month in a row enter the negative zone with minimum values in recent years. The question of the decision on Britain's exit from the European Union is raised by October 31. This is quite critical, as further delay on this issue will further slow down economic growth.
Mark Carney, chairman of the Bank of England, said the manufacturing data was in line with the overall weakness in the economy. He also said that the regulator is ready for any course of events on Brexit. The market assumes that the Bank of England is not going to change monetary policy until an agreement with the European Union is reached. At the same time, the decline in inflation suggests that the regulator can intervene and reduce rates already at one of the next meetings.
Volatility of the pound/dollar currency pair has increased and it is predicted that it will remain at a high level in the near future. Key Decisions on Brexit could be made by the end of the week. Optimistic sentiment remains high, but their changes in publications may force the British currency to turn around. The pound sterling was at 1.2510, with 1.2760 as the next benchmark.
Our forecast for next week is expected to further increase the pound/dollar pair to resistance levels of 1.2660, 1.2680, 1.2700, 1.2730 and 1.2770.