Forex Analysis & Reviews: 02.05.2019 - EURUSD: Fed Chairman Jerome...

02.05.2019 10:51 AM

EURUSD: Fed Chairman Jerome Powell believes in the US economy and is not going to lower rates

The US dollar weakened slightly against the euro and the pound before the publication of the decision on interest rates in the United States, but then confidently regained a number of positions.

Yesterday's report on the number of jobs in the US private sector had no impact on the market.

According to Automatic Data Processing Inc., the number of jobs in April this year increased by 275,000, while economists had expected growth of 177,000. The agency noted that the temporary weakness of the economy at the beginning of this year did not affect employment.

Let me remind you that tomorrow the US Department of Labor will publish its monthly report on the number of jobs outside the US agriculture. Growth is expected to reach 190,000 jobs.

Pressure on the US dollar had a weak report on manufacturing activity in the US in April this year. Activity slowed amid fears of trade tensions. According to the report of the Institute for Supply Management, the production index in April 2019 dropped to 52.8 points against 55.3 points a month earlier. Economists had expected the index to be 55 points in April. Let me remind you that the index values above 50 points indicate an increase in activity.

The main decision of yesterday was that the Federal Reserve kept the range of interest rates on federal funds unchanged between 2.25% and 2.50%. However, it is worth noting that the committee lowered the rate on excess reserves IOER to 2.35% from 2.4% to stop the federal funds rate from moving up.

The Fed announced a patient position, as economic activity has been growing at a moderate pace since the last meeting. Despite this, labor markets remain strong, and employment is growing at a steady pace, which was confirmed by the report from ADP.

Speech by Jerome Powell supported the US dollar. The Fed Chairman said that the incoming data mostly correspond to March expectations, and the economy continues to go on a healthy course. In this regard, Powell sees no weighty arguments in favor of changing rates in one direction or another. This meeting also did not decide on the composition of the Fed's portfolio.

As for inflation expectations, the Fed Chairman has every reason to believe that the easing of inflation was partly due to temporary factors, and weak basic inflation in the 1st quarter of this year is not associated with an increase in interest rates at the end of last year.

As for the technical picture of the EURUSD pair, the further growth of risky assets is limited by the resistance of 1.1215. Only a return to this level will return new buyers to the market, who are counting on the renewal of major resistance of 1.1260, which yesterday limited the upward trend. Bears will count on a breakthrough and a return below the support level of 1.1175, which will completely reverse the current upward trend, formed on April 24, and return the trading instrument to the lows of 1.1150 and 1.1110.

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