14 September, 2015
Last Friday, the euro rose by 60+ points, and British pound the contrary has lost 17 points because of negative data on the July production in construction sector by 1.0% against expectations of growth on 0.5%.
The main issue on the agenda - the Fed's rate increase. Financial market participants and politicians are worried that rate increase could trigger the collapse of stock markets. However, statistics show that after changes the rate continues to fall only for the first 1-3 months, after which balance will be restored in future. According to the American research company Witter&Lester, during reducing the rates, S&P500 increased by 1.38% per month. At this moment, the Fed's task is carefully and slowly to increase the rate, as Fed's representatives said all this time.
Now there are several major interference for increasing rates. Firstly, according to the World Bank, it is potential new disturbances in emerging markets. Second, the mass dumping of US government bonds to Chinese government agencies, due to which the yield on 10-year Bamaga has grown from 2.1% to 2.45%. On the other hand, the above steps may not have a strong impact on market, as this will not occur on open market. Looking at the situation, we can assume that global organizations are concerned about increasing rates more than the Fed. International rating agency Moody's has opposed the rate increase in September. The most likely scenario, in our view, that Fed's decision will be as follows: nevertheless the rate will be increased, but the Fed will announce about the need for a long period in future to study the effect of action on global economy and markets. Increasing the rate could become a new impetus and a new chapter in currency wars. Especially it will be noticeable against the background of recession of emerging markets and crisis in the euro zone, Japan and China. Meanwhile, the raw infrastructure is changing. Thus the United States should try to get ahead of young markets' plans and move to settlements in national currencies.
At present, the euro area presumably will publish mostly positive data - is expected an increase in industrial production by 0.3%. Although tomorrow it is likely a reduction in the trade balance for July and the deterioration of business sentiment ZEW. In markets of the United States changes are foreseen, it is expected a report on global currency policies. Same thing in the UK, important news on inflation is only expected for tomorrow.
EURUSD will continue the flat movement in corridor of 1.1280-1.1390, break through one of these levels probably in the middle of the week will mean an attempt to form a new movement. A similar situation with GBPUSD: pair is actively testing the resistance level of 1.1570, but we can not exclude the downward movement to 1.5400 and below. As with the euro, it is recommended to wait for news block in the middle of the week.