American positivity. Fundamental review on 29/02/2016

American positivity

The past week has ended for the dollar very well. The Fed has long noted that, among other things, they are closely watching the growth in consumer spending as one of the main barometers of the state of affairs in the economy. On Friday it became known that the index added 0.5%, which was the best result in the last eight months. Moreover, the results of GDP was revised to 0.7% in the IV quarter to 1.0% despite the fact that most of the analytical surveys predicted a reduction in the rate to 0.4%.

What is important here is not so much the stats, but the context. In recent months everybody was talking about the risks of the US economy returning into a recession. The grounds for such assumptions were, and remain, very significant, and in the first place - because of a slowdown in China's growth. That is why the rate increase in December, was named by many as one of the factors of a likely rollback to the recession, but then it turned out that the US economy has endured and continues to grow.

Now, however, there is even more uncertainty regarding the future actions of the Federal Reserve. The ECB and the Bank of Japan loosen their monetary policy, and talk openly about the possibility of even more decisive action. Let me remind you, the Bank of Japan earlier introduced a kind of analogue of the European negative deposit rate, a further reduction of which the ECB can go to in March. In such a situation, "polar" central banks actions usually result in sufficiently strong trend movements in the currency market.

After strong GDP data, crucial information for future Fed decisions will be the situation in the labour market. The unemployment rate has almost returned to pre-crisis levels and now stands at 4.9%. Data for new jobs, the publication of which is expected on Friday at the level of 195K, can be a further confirmation of the recovery of the labour market. Accordingly, if the positive trend in consumer spending will continue in the coming months, the Fed will receive all the grounds for another rate hike.

At the same time thereby increasing rate the regulator will give the dollar an even greater acceleration in its strengthening, especially if other major central banks remain committed to easing their policy. However, the Fed has to raise the rate, because otherwise it will undermine the credibility of its forecasts, in which the whole of last year, they "trumpeted" about the imminent series of rate hikes. It turns out that no matter how paradoxical it sounds, but if on Friday "weak" labour market data comes out, the Fed can exhale with relief - it will be possible to refer to the need to wait for an acknowledgment of labour market recovery and will not have to touch the rate for some time.



In terms of short-term trading for the Eurodollar main trend remains downward. In addition to the expectations in the divergence of actions of the ECB and the Fed, current statistics have an impact on the market, which cannot be called positive for the euro. On Monday, Eurostat also published unexpected for market statistics, though in this case it turned out to be unexpectedly negative - the preliminary assessment of the inflation amounted to 0.2%.