This scenario often happens where investors are looking forward to one event, and completely different markets are moving. The US labor market report for August left a mixed impression. Employment outside the agricultural sector increased by 130 thousand, which is below the average for January-July (165 thousand). On the contrary, salaries accelerated to + 0.4% m/m and as a result, investors received a new puzzle. What if the inflation in the United States accelerates to 3% under the influence of the weakening monetary policy of the Fed?
The main drivers of EUR/USD quotes changed during the first week of autumn, when the hawkish speeches of the ECB envoys, weak statistics on business activity in the US manufacturing sector, as well as good news from Rome and London. Contrary to the desire of Prime Minister Boris Johnson (who voted to prolong the transition period for 3 months) to "leave the EU or die" , and the new-old head of the Italian government, Giuseppe Conte, announced the formation of a new pro-European cabinet. Reducing political risk has extended a helping hand to both the pound and the euro, especially since a split is planned in the ranks of the ECB.
Investors were sure that the European Central Bank was following the path of its colleagues from other countries, which had already reduced 32% cumulative rates by almost 14% since the beginning of the year. Markets expect deposit rates to decrease by 10 bp and the asset purchase program to resume by € 30 billion per month. Alas, judging by the speeches of the representatives of Germany, the Netherlands, France and Estonia, the consensus in September, Mario Draghi will be extremely difficult to achieve. The hawks are confident that deflation is still too far away, so a large-scale monetary stimulus is not required. Of particular interest is the position of the head of the Bank of France, Francois Villeroy de Galhau, who believes that there is no need to use all the tools at hand at the same time.
Monetary expansion of central banks
"Doves" and "hawks" of the ECB
The ECB meeting is rightfully considered the key event of the week by September 13, but investors will pay attention to a serious package of macro statistics in the States. In particular, inflation and retail sales. When Donald Trump launched a massive fiscal stimulus and launched trade wars, people were frightened by an uncontrolled rise in consumer prices. Time passed, but they were not in a hurry to disperse. However, in August, Bloomberg experts expect core inflation to rise to 2.3%. If it is even higher, should the Fed consider whether it is necessary to reduce rates?
No less significant is the release of retail sales data. The indicator allows you to determine consumer activity, and the contribution of consumers to GDP is difficult to overestimate. If everything goes well with retail, the economy in 2019 is quite capable of expanding by more than 2%, which makes the easing of the Fed's monetary policy inappropriate.
Technically, the EUR/USD quotes rebound from the convergence area of 1.089-1.093 is a signal that the initiative is in the hands of the bulls. Nevertheless, the "bears" do not lose hope of returning to the game but first, they need to lower the pair below 1.1015.
EUR / USD daily chart
