One of the two undoubtedly key events of this week is behind us. It was a decision and press conference of the European Central Bank. Today, at 14:30 we will be waiting for data from the US labor market, including popular NFP (non-farm payrolls).
According to market expectations, the European Central Bank left interest rates unchanged. The reference rate is still 0.00 percent and the deposit rate minus 0.40 percent. However, in the statement the ECB shifted expectations over the next rate increase from the end of 2019 to mid-2020 or later. "The Governing Council is now expecting the ECB's key interest rates to remain at its current level until at least the first half of 2020" says the statement.
Nevertheless, despite the retraction of interest rate increases, the euro has strengthened, and this seems to be a reaction to the optimism of macroeconomic projections. The market, receiving a series of not the best data from the European economy, and also looking at falling inflation expectations, most likely expected a downgrade of forecasts. Meanwhile, the ECB seems more optimistic. The GDP growth forecast for 2019 was revised upwards from 1.1%. up to 1.2 percent. The inflation forecast was also raised from 1.2 to 1.3 percent. in 2019.
The EUR/USD for the second time defended the area of 1.1300, trying once again to break the trend line from the September 2018 high. It is also worth paying attention to what is happening on the FX options market. The turnover on options for the euro was higher yesterday due to investors' expectations towards weaker dollar before today's data from the US labor market – according to data from Bloomberg.
After the weak reading of ADP this week, the attention is focused on NFP, where the market will look for confirmation that the actual increase in employment in the United States was so low. This, in turn, may help determine if the Fed will cut rates in the coming months. That is why today's publication at 14:30 is so important. Market consensus is 185,000, and in addition to NFP, the US unemployment rate or average hourly earnings will also be published.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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