On Friday dollar bears got a double blow. First, preliminary data on German inflation were worse than expected. Herewith annual basic inflation became negative due to the effect of the base. It was a negative surprise for euro. Besides, indices of moods and confidence continue to decrease in the Eurozone. The second blow was American statistics. The second evaluation of GDP for the 4th quarter and the data on incomes and expenses were better than predicted. As a result, dollar’s index left the range of last days and closed above 98.00. In the short term technical picture has improved for dollar. However, we presume that it is too early to talk about return to the growth trend. On that day the stock market showed contradictory dynamics, and despite the renewal of weekly maximums at the beginning of the session, American indices closed with losses.
This week will be very interesting. The month is near its end, but following its outcomes dollar is trading in minus – losses of the beginning of the month aren’t regained yet. If this month closes in minus for dollar, then it makes sense to be cautious about prospects of its further growth. During the week the U.S.A. will publish several important economic reports – ISM in industrial and service spheres, Beige Book, production orders, trade order. It will be finished by publication of labor report on Friday. For last weeks improvement of American economic indicators has become typical. Dollar has improved its positions on these data. Still it doesn’t guarantee increase in rates by the Fed – they are to be confident that higher rates won’t ruin this fragile growth. Secondly, we have already pointed at one nuance – the exchange market has been highly dependent on dynamics of the stock market for last months. Growing expectations of increase in rates by the Fed can raise investors’ concerns that these actions will have negative impact on economic growth and collapse the stock market, pulling dollar with itself. Besides, labor market isn’t all right. There are concerns that growth of new work places has reached some limit and further they will grow at more moderate pace. If in previous year weak report on labor was an exception rather than a rule, and was followed by quick return to high growth rates, then now there are risks that high growth rates of new work places will become an exception. All this makes us regard current situation as an unclear one for dollar. In the Eurozone there are significantly fewer events and their negative is mainly regained. Weak PMI is already regained and final data are unlikely to change anything. Unemployment isn't in market's focus. Unexpected positive of retail sales is possible. The stock market dynamics remain the key factor for euro. Considering local data of this week, we'd like to highlight the Reserve Bank of Australia session on monetary policy and Australian GDP for the 4th quarter. The RBA decision will probably become a defining one for Australian dollar. If rates are left at current levels, then renewed growth of Aussie is possible. The report on Canadian GDP for December is also of some interest. Still, here much depends on dynamics of oil prices.
Today the most interesting data are German retail sales and the Eurozone's inflation as a whole. According to the data on German inflation, weaker report on the Eurozone can be expected too. Herewith we'd prefer not to hurry talking about negative. We have noticed that despite the fact that monthly inflation of Germany has reached forecasts, but it showed outstanding growth in contrast to previous month. Accordingly, if general inflation also shows growth, it leaves room for the ECB actions and retains arguments for opponents of new stimulation measures widening.
Now we stay out of the market, but we are preparing for euro’s purchases. Our middle-term indicators are in oversold areas and give signals of coming rollback. Levels for purchases are approximately at 1.0790 – 1.0820.
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