Overbought risky assets, disagreements in trade negotiations between the US, Canada, and Mexico, as well as fears that the draft budget of Italy will go beyond the permissible EU framework. All this had a negative effect on the European currency, which began to decline rapidly after the monthly maximum update paired with the US dollar. The British pound also collapsed on Friday after the speech of British Prime Minister Theresa May.
Fundamental indicators
Data released in the second half of the day on the US economy, slightly affected the quotes.
According to the report, activity in the US manufacturing sector in September this year showed a significant slowdown. According to the company IHS Markit, the preliminary composite index of supply managers PMI was at 53.4 points against 54.7 points last month. Let me remind you that the indicator above 50 points indicates an increase in activity.
As noted by IHS Markit experts, partial slowdown is associated with Hurricane Florence, while new orders and employment grew at a fairly significant pace.
Trade agreement with Mexico
On Friday, it also became known that the administration of the White House can enter into a trade agreement with Mexico even without Canada participating in it. With such an address, the chairman of the Council of Economic Advisers under the US President, Kevin Hassett.
Hassett said that the US had a successful negotiation and reached an excellent deal with Mexico, which for both sides is more profitable than the current agreement on NAFTA. He expressed the hope of concluding such an agreement with Canada and the EU. The representative of the president was disappointed by the fact that Canada has not yet signed a trade agreement.
Italy
Additional pressure on risky assets has political risks associated with Italy. Let me remind you that this Thursday, the first draft of the budget of Italy will be presented, which can seriously disappoint the markets. The point is that the budget may largely diverge from the EU's Stability and Growth Pact. Experts are concerned that the pre-election promises of the new government can seriously affect the new budget, which will lead to overstepping the limits of allowable costs, which will increase Italy's public debt and leave room for fiscal maneuvers in the future.
Technical picture EUR / USD
As for the technical picture of the EUR / USD currency pair, it is best to buy back to purchases after a larger downward correction in risky assets, which was formed at the end of last week. The main support levels are located in the area of 1.1715 and 1.1680, from where a large surge of volume can be observed. Also in this span, the bulls will try to form the lower boundary of the short-term ascending channel, formed on the 10th of September.
British pound
The British pound collapsed against the US dollar after the British Prime Minister stated that negotiations on Brexit had reached a dead end.
May said that there are still differences on two important issues, one of which is the customs border with Northern Ireland, which the UK will never agree to. According to the Prime Minister, it is better not to reach an agreement at all than to reach a bad agreement on Brexit. The government expects respect from the EU, and unless a clear proposal is made, progress is unlikely to be achieved.
At the end of the speech, May said that even if an agreement was not reached, the rights of European citizens would be protected.
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