On Friday stock indices came to their senses and started regaining prospects of new quantitative easing, which Mario Draghi had announces the day before. This and stability of energy prices had positive influence on dynamics of trade currencies and British pound, which gained weight considerably by the end of the day. The common currency spent the whole day in consolidation, rolling back within the correction below 1.1100 in the first half of the day after the rally the day before, and in the second half it tried to approach weekly maximums. The messages that at its last session Bundesbank opposed to introducing stimulation measures, especially to widening of volumes of bonds buying-out, supported euro. Yen traditionally passed its positions against the background of increased interest to risk. In general, dollar’s index stayed practically unchanged.
This week will be interesting too. This time everything will pass under the sign of FOMC. Very few people doubt that the Fed will continue keeping pause and won’t increase rates. Therefore the market will orient at accompanying comments. Short-term prospects of dollar depend on how tough they will be. If Yellen succeeds to convince players in stability of course of monetary policy tightening and inevitability of increase in rates this year, then market moods can change sharply again. Herewith before FOMC session the U.S.A. will release series of important economic reports – retail sales, producers’ prices, consumer inflation, industrial production. Forecasts aren’t very positive for dollar. And if inflation shows signs of decrease again, then even tough rhetoric by Yellen won’t impress the market. In its turn, the Eurozone won’t provide significant statistics this week.
Besides the Fed, there are several regulators, which will hold their sessions on monetary policy this week – the Bank of Japan, the National Bank of Switzerland, the Bank of England. Actually, only the Bank of Japan can surprise. The program of quantitative easing is stalling – inflation has started to fall again, yen is strengthening, what just aggravates the situation. Probably, Japanese regulator will undertake some verbal interventions to prevent strengthening of national currency at least.
This week will be also full of local events, which are able to influence dynamics of corresponding currencies significantly – the report on British unemployment, New Zealand GDP, the report on Australian unemployment, retail sales and inflation in Canada.
Today the report on the Eurozone’s industrial production is of some interest. The similar data on Germany showed strong results a week ago. It is natural to expect the same result for the Eurozone as a whole. Although it is a positive for euro, still, it is unclear how the common currency will react to outcomes of elections in three federal states of Germany, where Merkel’s party CDU passed positions considerably. According to preliminary data, right-wing populist party “Alternative for Germany” managed to lead its representatives to all these regional landtags. Now euro demonstrates stability at the opening of the market. Besides, during this day bounce of energy prices is possible after Sunday’s statement by Iran’s representatives that they will be ready to join agreement on oil production freezing only after they will reach production level above 4 million barrels per day and now it is about 2, 8 million barrels. Other producers can disagree with it, first of all, it concerns Saudi Arabia, taking into account “tender” relationships between these two countries. If bounce of energy prices happens, then it will have negative influence on trade currencies, especially it will affect Canadian dollar, which has shown close link with dynamics of energy prices for last weeks.
As we recommended on Friday, we opened long position in EURUSD pair from 1.1090, stop was rearranged at the entry point according to the recommendation. Despite some concerns, our indicators still point at probability of repeated testing of levels above 1.1200. We are going to keep position at least to the range 1.1230 – 1.1260, where we will make decision on further fate of the position.
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