Vector Securities - Analytics

    Vector Securities

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    Successful negotiations on membership in the EU caused hot debates in the U.K.

    Quite good data on US inflation were published on last Friday. Still, it didn’t become a reason for general strengthening of dollar. As we presumed, the stock market acted strangely, being in the read area for the most part of the trades. Although EURUSD pair renewed local minimums, but the key support at 1.1060 resisted. Besides, the common currency was supported by the comments of the ECB representative Constancio – he claimed that negative interest rates had bad influence on banks’ profits and it’s worth being cautious about this instrument of monetary policy. At the end of the session, the messages appeared that the U.K. and the EU found a compromise on controversial issues. Herewith the U.K. got necessary concessions on almost all issues. Pound increased sharply on this news by the closure of the session, still, holidays made corrections to this picture. During the discussion of outcomes of these negotiations in the U.K. itself, most politics criticized the agreement. Oppositional mayor of London wasn’t the only one, who sharply opposed to it, but even six members of Cameron’s cabinet stated that they would stand against membership in the EU at coming referendum. As a result, today pound opened with sharp fall at the beginning of trade session and lost all achievements of Friday. 
    This week will be crucial for middle-term prospects of the exchange market. If dollar’s index returns below 96.00, then technical picture will worsen considerable for it. Still, it will be difficult to do. During last week or two published economic data have moderately improved in the U.S.A. However, it is unclear whether it is temporary or the beginning of more stable improvement of US economy. The Fed’s readiness to take another increase in rates at the nearest session in March is also under question. Herewith such decision can raise concerns that fragile basis of economic growth can be undermined, what can provoke wide-scale collapse of the stock market. So, dollar will face difficulties before confident signals of improved economic conditions appear. Singular positive aren't enough for investors now. This week the U.S.A. will publish consumer confidence index, new houses sales, durable goods orders, the second evaluation of GDP for the 4th quarter, incomes and expenses. Relying on forecasts, there is no whole picture again - something is better, something is worse. Much will depend on behavior of the stock market, which grew considerably on expectations of stabilization of energy prices last week. Still, further growth also needs growth of the world economy. The situation is unclear for euro too. There statistics are also mixed. This week preliminary data on business activity for February, final GDP for the 4th quarter and unemployment in Germany, IFO report on moods in business environment and preliminary data on German inflation for February will be published. Probably, the last report, which is scheduled for Friday, will be decisive. Now low inflations is a defining factor for the ECB, which pushes the regulator to further softening of monetary policy. If it starts to grow (forecast is quite optimistic), then it will restrict actions of the ECB, what will be a strong support for euro, even despite improved economic indicators of the U.S.A.
    Trade tactics:
    At this moment, we have no new ideas. Despite repeated bounce from the support at 1.1060, risks of its breakthrough exist (daily bottoms show new local minimums every time). Therefore, it is risky to look for opportunities for purchases “at the bottom”. We don’t see specific grounds for pair’s sales. Our plan for Friday is still in force – to buy euro under breakthrough 1.1150, stop at 1.1060 with initial aim at 1.1190 – 1.1200. 
    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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