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The pound began to actively decline on Wednesday, after British Prime Minister, Boris Johnson, once again rejected EU's proposal for a trade agreement. The start of the negotiations will officially begin in March this year. Meanwhile, the report questioning the prospect of increased budget spending gave a negative impact on the pound.
On Tuesday, Prime Minister Boris Johnson rejected all the conditions announced by the European Union. As a result, fears on the possibility that Brexit will happen without a trade agreement has increased. It is clear that the pound will remain under pressure at the beginning of negotiations, when the parties refuse to make adjustments for each other. Nevertheless, an agreement is vital for both, as it will allow finding a common ground to solve small issues and more important ones.
Meanwhile, the report of the Institute for Fiscal Studies focuses on the complexity of raising budget expenditures. In order to implement the plan, the new Minister of Finance, Rishi Sunak, will have to raise taxes or break the rules of borrowing. Let me remind you that the report on the UK budget is due on March 11.
At the same time, there were talks that the Bank of England may lower interest rates as early as this spring. Even if the government proposed a plan to increase spending, such will be done because of the weak growth of the world economy. Last year, the same steps were taken by the United States, whose growth is now slowing due to the spread of the coronavirus. The virus has already been recorded in Greece, not to mention the increase in cases in Italy, where it recorded 52 at the beginning of the week, to 135 people at the moment. Additionally, the decision to lower interest rates will also be affected by the UK GDP data. If it does not meet the expectations of the Bank of England, the regulator may start talking seriously about easing the monetary policy in the 2nd quarter.
Such situation is not good for the GBP/USD pair. However, do not forget that this is just the worst-case scenario at the moment, and weak macroeconomic statistics is needed to implement it. Any movement to ease the issue of trade negotiations will cause the pound to grow. Meanwhile, the bulls are currently experiencing problems. In the short term, an urgent return to the resistance of 1.2950 is needed. Once it happens, the demand for the pair will return, and it will lead to an update of the highs of 1.3010 and 1.3060. On the other hand, to maintain the pressure on the pair, a return to the support of 1.2890 is needed, which will quickly push GBP/USD to the lows of 1.2850 and 1.2790.
EUR/USD
Although new home sales in the US rose, the dollar continued to lose ground against the euro.
In the morning, a report was released indicating that the consumer confidence index of France in February this year remained unchanged at 104 points. It was forecasted to fall to 103 points.
As noted above, new home sales in the United States increased in January, indicating the revival of the real estate market. A report from the Department of Commerce shows that home sales from the previous month rose by 7.9% and amounted to 764,000 homes a year, while economists had expected it to be 711,000. The average price of a new home was $ 348,200. At the same time, the data for December was revised upward, indicating that sales amounted to 708,000, against the first estimate of 694,000. The low interest rates, a strong labor market and a growing economy gave a positive impact on the indicator.
As for the technical picture of EUR/USD, the pair is gradually approaching the large resistance level of 1.0930. Many players can take profits after a correction is observed from this year's lows. If there is no major surge in volume at this level, it is possible that the buyers of risky assets will try to reach the high of 1.0980. Otherwise, if the euro moves downward, support will be seen around 1.0860 and 1.0830.
Oil
Oil prices continue to update the lows of the year, moving in the direction of $ 45 per barrel for the WTI brand. The final target of the sellers will be the area of 42.50. Yesterday's report on the growth of commercial oil reserves in the US put pressure on the trading instrument. According to the US Department of Energy's Energy Information Administration, oil stocks rose from 452,000 barrels to 443.3 million barrels during the week of February 15-21. Experts had expected it to grow by 2.1 million barrels. Meanwhile, gasoline inventories fell from 2.7 million barrels to 256.4 million barrels. Distillate inventories fell from 2.1 million barrels to 138.5 million barrels. The utilization of refining capacities decreased from 1.5% to 87.9%.
The decline in oil is putting pressure on the commodity currencies such as the loonie and the ruble, which has been falling since the beginning of this year.
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