The S & P 500 broad market index fell again in trading on Monday, reaching a low of 2583.32, which is the worst index since April and indicates that markets continue to reorient to a likely change in Fed policy due to a reassessment of growth prospects in 2019.
Consumer confidence is still high, and private consumption still supports growth, but some factors indicate that the drivers for expansionary economic growth are running out. For example, the growth rate of investment of non-residents has been falling for seven months in a row, that is, the direction of financial flows is not at all in favor of the dollar, despite all efforts.
Perhaps the markets will take a pause before the Fed meeting on December 19, but the general trend is unlikely to change. The deterioration of forecasts for the growth of the US economy looks obvious, the target will also be adjusted according to the level of the neutral rate, which will definitely be perceived as a recognition of the approaching recession. The dollar loses momentum to grow.
Eurozone
Investor confidence indicator Sentix dropped sharply in December to -0.3p against 8.8p a month earlier, the overall economic index is at a minimum since December 2014, economic expectations fell to a minimum since August 2012.
With the exception of a small pause in the summer, everything goes down throughout the year, and it is significant that it was in August 2012 that Mario Draghi announced changes in monetary policy. The ECB did not have time to announce the completion of a successful economic support program, as business activity and economic expectations rolled back, completely playing the entire six-year positive.
As Sentix notes, the momentum of decline is in many ways similar to the 2007 movement, and banks find themselves in exactly the same difficult situation, and the ECB will have to offer markets some new mechanisms to support the economy after the completion of the asset repurchase program at a meeting on Thursday.
The currency pair EUR / USD is unlikely to be out of the trading range until Thursday; an attempt to test the resistance of 1.1440 looks a bit more likely than a decline to support of 1.1267.
Great Britain
The British pound from the second attempt broke through the support level of 1.2660 and dropped to the lowest level since April 2017. The reason was the announcement of the cancellation of the Brexit vote, which Theresa May made during a speech to parliament.
Refusal to vote means a direct admission that the May government has no chance of passing the bill, which would ultimately lead to its resignation and government crisis.
May said that there is a serious danger of a split in the UK in the event of a re-vote on Brexit, and explained that parliamentarians' expectations on certain elements of the agreement are unrealistic. If the voting took place and it would fail, the country would face serious consequences that would lead to severe economic damage.
The damage, I must say, is already significant and without Brexit. A report on industrial production in October reaffirmed that the UK economy is slowing down at a fast pace.
The balance of trade in goods in October at a 6-month low, as well as trade with countries outside the EU, GDP growth rates are on the verge of slipping into recession. The pound has so many reasons for declining even without Brexit, so the chances of resuming growth in the short term are slim.
The currency pair GBP / USD may rise to the level of previous support of 1.2660 as part of the correction, but only in order to leave even lower again. The next target is in the range of 1.2360 / 80, and the probability of reaching these levels before the end of the week is quite high.
The material has been provided by InstaForex Company - www.instaforex.com