18.01.201910:00 Forex Analysis & Reviews: Euro lost all optimism

Eurozone

The final figures for inflation in the eurozone in December came out in accordance with the preliminary estimate, without having any impact on the euro quotes. The price increase was 1.6%, root inflation at 1%, which is below the target levels of the ECB but does not cause concern.

Inflation is still low, but price pressures are increasing as wages rise, and the ECB has no reason to change its estimates since the main reason for the fact that inflation is still low is the fall in energy prices. As for the super-high-speed component, that is, prices that react to the business cycle, they are in the growth phase, which gives hope for the growth of core inflation by the end of the year to 1.5%. Which, in fact, completely suits the ECB.

Another thing, the slowdown in business activity. At the December meeting, the ECB gave a quite optimistic comment, stating that the risks associated with growth prospects in the eurozone can be generally regarded as balanced. Next week, most likely, the bank will have to admit that the balance of risks is shifting to the downside due to the growing uncertainty associated with geopolitical factors, increased protectionism, increased volatility and slowdown in emerging markets.

The reality for the ECB has changed. PMI in the eurozone continues to decline, the US and China report a slowdown in growth, in the eurozone itself a very low level of industrial production, Germany is slowing before our eyes, and unrest continues in France. The ECB is likely to shift the risk assessment down, again, it is likely that the forecast for GDP growth will drop from 1.7% to 1.4% or even to 1.2%.

In fact, on the side of the hawks in the ECB, there is only rising inflation, everything else indicates an approaching period of cooling. In such circumstances, the ECB is unlikely to risk supporting a hint of a rate hike in the summer, market expectations for the rate will shift at best by the end of the year, and the euro will experience increasing pressure. Any indication of the continuation of the asset reinvestment program, and even more so of the expansion of support for the economy, will be perceived negatively by the markets, and this is precisely what is going on.

The threat of EUR / USD decline to 1.1330 by the end of the day is growing, there is no reason for optimism. The euro will be under pressure in the coming days.

Great Britain

For Britain, there was a light at the end of the tunnel. The Brexit agreement could be revised to the mutual satisfaction of the parties. As the European Union's main negotiator for Brexit, Michel Barnier, said on Thursday, Brussels will make concessions in the deal if Britain, in turn, will also be ready to make concessions.

The pound immediately responded with growth, as this recognition sharply increased the chances of a successful outcome. Britain removes the threat of early elections and a repeated referendum, as well as a number of unpleasant financial and trade consequences that would have been realized in the event of a tough scenario. The EU, in turn, against the background of the growing threat of protectionism, should prepare for difficult negotiations with the United States, and if it will have a slowdown in trade at the same time with China and Britain, this can put strong pressure on already weak economic activity.

GBP / USD on Friday looks stronger than the dollar and can rise on the positive wave to 1.31 if any insider appears about preparing for the final vote in parliament on Monday. Support has moved to 1.2930.

Oil

OPEC maintained its forecast for oil demand for 2018 at the level of 98.78 million barrels per day and for 2019 at the level of 100.08 barrels per day, noting that growth will be provided, first of all, by Asian countries headed by India. Saving the forecast contributed to the growth of quotations, Brent rose to 61.95 and is preparing to check the previous maximum of 62.50.