15.02.201803:36 Forex Analysis & Reviews: Euro, pound, oil: main trends

Eurozone

In the absence of significant macroeconomic news and unstable equilibrium in the markets after the recent collapse, ECB officials remained silent and did not comment on any prospects for monetary policy nor recent developments in the markets.

In an economic bulletin published a few days ago, the ECB said that core inflation continues to be under pressure and that the recent surge in enthusiasm is a thing of the past. There is no sign of a reliable upward trend. Some positive news is the increase in the average wage but there is no sustainable trend according to this criterion. Inflation expectations are consistently below the 2% target and the risk of deflation remains.

It becomes clear as to why the ECB does not dare to announce the end of the incentive period despite a record growth in the trade balance and overall economic activity. Perhaps tomorrow's speech from the chief economist of the ECB Praet at a joint conference of the IMF and the French Ministry of Finance will give some impetus to the euro but at the moment, the ball is being ruled by technical factors which are in favor of the euro. The EURUSD pair formed a new support for the level of 1.2206. It is higher than the previous 1.2165 so the threat of testing the level of 1.2537 remains high.

United Kingdom

Consumer inflation for the month of January remained at the level of 3.0% which coincided with the level of December and was a tenth of a percent higher than analysts' forecasts. The base index also increased from 2.5% to 2.7%, exceeding the forecast.

The result is unpleasant for the Bank of England, which last week announced its desire to return inflation to the 2% target for two and not three years, as previously planned.

At the moment, the market estimates the probability of a rate hike for the meeting in May at 70% and the probability of another increase by the end of the year at 50%.

If we compare inflation with an increase in the average wage then this comparison will not be in its favor. This means that the real income of citizens fell and the UK economy, largely dependent on the state of consumer demand, may face difficulties in trying to accelerate recovery.

Since February 8, the pound is weaker against the euro. The reason is that the issue of financial activities of banks and corporations after the "division of property" can be resolved not in the favor of London. While Britain remains part of the EU, London remains the financial center. However, after the separation, Europe can block the work of financial centers if they remain under the jurisdiction of the queen. Negotiations on this item are particularly difficult since the crux of the matter is where banks and financial corporations will pay taxes.

Technically, the pound is locked in the range of 1.3723 / 4065. The explicit driver is not traced to either go south or north. The most likely scenario is the continuation of the trade in the lateral range.

Oil

The situation with oil continues to develop according to the laws. The collapse of quotations, which occurred in early February, is associated by most experts with the rapid increase in production in the US. This allegedly creates a threat to excess production. However, a number of other estimates indicate that the reason may not be the increase in production but the threat of a slowdown in global trade, as the fall of markets has sharply increased when US President Trump announced plans to revise trade tariffs with key partners.

Russia remains in the frames of OPEC +. The head of the Ministry of Energy of the Russian Federation, Novak, is not waiting for the balance of demand and supply earlier than the end of this year but for the time being, an agreement has been reached where there are no objective reasons for the collapse of quotations. While the trade goes above the key level for Brent at 60.90, the chances of price recovery remain.