The growth rate of the US GDP has somewhat slowed down in Q4 but it was not as pronounced as the market had expected, which ultimately contributed to the strengthening of the dollar.
The first data release points to a 2.6% annual GDP growth, which is worse than 3.4% in the 3rd quarter and 4.2% in Q2, but better than the predicted 2.3%. For the whole of 2018, the growth was 2.9%, which is quite consistent with a strong labor market. The ISM index assumes even higher GDP growth than preliminary data. Thus, a failure in Q1 despite weak retail sales data and shutdown is unlikely to occur.
Nevertheless, the slowdown of the US economy in 2019 is inevitable, considering the tightening of financial conditions and weakening incentives have a lagging effect, and tax reform could not have the effect that was calculated. The yield curve still indicates the likelihood of a recession in the next 9-12 months, but in order to push the development of events under a negative scenario, some kind of driver is required. The growth of stock markets as a reaction to the Fed's changing policy indicates that the bubble has not yet fully formed and some potential for growth remains. The Fed's plans to find an equilibrium level of balance above the pre-crisis one and a pause in interest rates also indicate an intention to prevent excessive tightening of financial conditions.
A lot of questions has caused the exhaustion of the national debt ceiling and the growth of the budget deficit. But so far, there is no action and the dollar will remain stable. Trade negotiations with China are slow, but some of the growing US deficit will still be closed at the Chinese expense. Soon after, Europe's turn will come.
Today is quite a busy day for the dollar. Data on personal consumption in December, PMI Markit, as well as, ISM indices in the manufacturing sector and consumer confidence index from the University of Michigan will be published. In general, the expectations are moderately positive and taking into account it is Friday, we can expect that the dollar will slightly improve its position, primarily against the yen, by the close of the week.
EUR / USD pair
The Preliminary data on consumer prices in Germany in February can be considered positive. Fears of a possible slowdown in inflation rates did not materialize. Today, data on inflation in the Eurozone as a whole will be published with a positive outlook. The output of the data is not worse than expected which can support the euro.
The decline in the EUR/USD pair still looks corrective and may end in the area of 1.1340/50. There is a probable resumption of growth with the target of 1.1418 and then to 1.1430.
GBP / USD pair
According to Gfk, Consumer confidence in the UK is low but at a stable level. The index slightly increased to -13p in February against -14p a month earlier, which turned out to be a surprise, as it was predicted to decline to -15p.
The index is more positive than negative, despite the slowdown in economic growth and uncertainty on Brexit. There are no signs of a sharp fall, which was immediately observed after the referendum. At the same time, the mood regarding the general economic situation remains gloomy and consumers are afraid of a possible storm when faced with the first consequences of leaving the EU.
The development of the situation occurs according to the scenario of Brexit, wherein the usual characteristic for those cases when each side tries to avoid responsibility for the result as much as possible. A complex three-stage parliamentary voting plan was adopted with a high probability to be completed, either by extending the validity period of Article 50 for 2-3 months or by a new referendum. The parties are trying to get away from the scenario where the UK leaves the EU without any deal. For the pound, these throwings are rather positive, since they indicate a reluctance to increase tensions.
Today, the pound remains to be the favorite to be paired with the dollar. The support is at the level of 1.3211, however, the probability of decline to this support is low. More likely, there will be growth and an attempt to update the recent high of 1.3350.
The material has been provided by InstaForex Company - www.instaforex.com