Eurozone
ECB President Mario Draghi, speaking at the forum of Nobel Prize winners in Germany, contributed to the increase of demand for the euro. In his speech, he focused on the positive results of the stimulus program, thanks to which the economy of the eurozone "shot up" and "works at full capacity." Another positive factor was the fact that Draghi did not say a word about the high rate of the euro, which the observers feared.
At the same time, Draghi made it clear that the asset repurchase program will be tapered early next year, despite the still low inflation. This is a bullish signal for the markets, but it has already largely recovered, as rumors of the impending completion of the program have been circulating in the financial scene since the beginning of the summer.
The approximation of correction is facilitated by the latest results of market research. Germany's economic sentiment indicator from ZEW fell to 10p in August, the lowest since October 2016, which indicates an increase in investors' fears about future economic growth. A similar indicator for the eurozone, in contrast, rose to 38.4p, and this is the highest since January 2008. According to IHS Markit, production in the eurozone is at a peak level for 6.5 years, meaning a strong currency does not hinder growth, and this is yet another signal that the euro's growth may continue.
Despite the fact that the euro has a significant potential to resume growth, the players in the coming days will be much more cautious and will wait for new comments from Draghi and Fed Chairman Yellen, who are preparing to give their speeches in Jackson Hole. Investors will also wait for news from the United States, where, perhaps next week, large-scale agreement on tax reform between the Congress and the Trump administration will be announced.
United Kingdom
The British pound continues to decline, losing all its power. Before the meeting of the Bank of England on August 3, the market expected that at least three cabinet members would vote for an immediate rate hike, but the reasons for the hawkish position to become dominant have not increased, but declined. The only thing that can support the pound is the higher inflation than other countries, but according to other indices such as industrial production, labor market, real incomes of citizens, GDP growth rates, the situation for the UK looks worse.
Based on the latest report on inflation, it is clear that the Bank of England, in the matters of normalizing monetary policy, is ready to follow the lead of the Fed and the ECB. According to its own forecast, the growth rates will be lower, namely, the dynamics of the yield spread will not be in favor of British assets, even despite some improvement in the May forecasts.
The pound, so far, does not yet have an idea if it is capable of returning to an upward trend. Today, updated data on GDP growth rates and investment volume for the 2nd quarter will be published. Experts do not expect positive changes, thus the pound will remain under pressure.
Oil
The decline in commercial oil stocks by 3.3 million barrels, according to the US Department of Energy, contributed to the increase of Brent quotations above 52 dollars per barrel. The market has not paid attention to the fact that the oil production in the US is increasing simultaneously, focusing on the data on reserves. Perhaps the reason for this selectivity is the research data, according to which the cost of production has been steadily increasing in recent months, which will inevitably lead to a reduction in the level of production in the near future and will ultimately help to find a balance between supply and demand.
The material has been provided by InstaForex Company - www.instaforex.com