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Deflation comes to Europe again

The Eurozone’s inflation declined and became deflation. Yesterday’s annual data showed negative figures, still, it was quite natural after Friday’s data on Germany. Although the basic inflation stayed above zero, still, it decreased. We’d like to highlight that energy prices make a major contribution to these prices. It means that the ECB is limited in its opportunities. Additional stimulation measures will have limited influence on oil prices. Meanwhile, started increase in prices is able to provoke growth of inflation without any interference. Coming decision of the ECB at next week isn’t predefined for us, it has quite strong group of opponents of quantitative easing widening. Following outcomes of the day, dollar increased, but almost the whole growth was provided by euro’s decrease on weak inflation data. Herewith the stock market’s attempts to renew growth failed, though energy prices rose by the end of the day. This time American statistics were worse than expected. Particularly, incomplete deals on houses sales fell unexpectedly. Besides, the situation with China still concerns us. Yesterday the National Bank of China lowered reserve requirements for banks again, and PMI business activity has appeared to be below forecasts today. Under these conditions, investors fear to buy risky assets.

At today session the Reserve Bank of Australia has left interest rates unchanged. The decision is quite predictable, Australian dollar has reacted with inactive growth. At European session the data on unemployment and final estimation of PMI in the Eurozone will be published. In both cases significance isn’t great. Unemployment level has stabilized long ago, and PMI is practically regained. However, downward revision will have negative influence on euro. Production PMI will be also published in the U.K. Taking into account that there is little data on the U.K. this week, and heated debated about the referendum go on, pound can react to the report with exaggerated activity, especially if the data are worse than predicted. Today final power of balance will be defined by American session after publication of production ISM. For three months the indicator has been below 50 points, forecasts promise some improvement. Recorded in last two or three weeks improvement of American indicators has positive impact on dollar, still, it is under the question whether American economy will succeed to avoid negative tendencies, fixed in the world. If today production ISM shows further decrease, then dollar bulls will have to take a pause.


Trade tactics:

The aims, which we pointed out yesterday for purchase of EURUSD pair are still in force – we will look for opportunities for purchase in the range 1.0790 – 1.0820, stop at 1.0700. In case of a pair growth of more than 30 points from the entry point, rearrange stop at the entry point.


Any opinions, advice, news, research, analyses, prices or any other information presented on this webpage is provided as general market commentary and does not constitute investment advice. "Vector Securities" shall not be liable for any loss, including loss of profit, which may arise directly or indirectly from the use of this information.

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