On Friday, two FOMC members almost synchronously voiced fears of a slowdown in the global economy, expressing the view that weak growth could lead to a revision of the Fed's benchmarks in terms of the neutral rate to the downside. On Monday, the probability of a rate hike at the meeting on December 19 is 68.9%, for March the expectations barely exceed 40%, which indicates a rather significant increase in doubts.
The dollar is losing momentum, and the obvious problems in the eurozone and the UK related to the Italian budget and Brexit are keeping it from starting a corrective decline.EurozoneFor the euro, the week starts with a negative. Despite the fact that on Friday, the inflation report came out at the level of expectations, the growth of the base index by only 0.1% in October is not at all what should inspire the ECB to implement the plan for exiting soft monetary policy. Business activity in the manufacturing sector declines for the third month in a row, falling to 52p, and the November report, which is expected on Friday, is unlikely to be positive due to the deterioration in the forecast for stocks.
The main question of the day is the budget of Italy. On Wednesday, November 21, the outcome is expected. The European Commission will publish a report that will set strict requirements for the Italian government to provide a plan to reduce public debt and reduce the expenditure side of the budget, otherwise the requirement of a deposit of 0.2% is likely, which will be used later to pay the fine in case Italy continues to violate the eurozone budget rule. Needless to say, such a measure could lead to the question of Italy's withdrawal from the eurozone.For the euro, this development is negative, but the aggravation of the conflict is not included in the plans of either party since the EU does not intend to encourage centrifugal processes. Nevertheless, there are no reasons for optimism, given Italy's refusal to look after the budget, the euro will remain under pressure in the short term.Today, trading is likely in the range with low volatility. The likely growth of EUR / USD is limited by the resistance of 1.1460 and support of 1.1340.Great BritainThe Brexit agreement may be signed at the EU summit on November 25, since May managed to defend his position in the Cabinet of Ministers, the government agreed to sign the agreement in the current version.At the same time, the chances of passing an agreement in parliament are low. The House of Commons consists of 650 deputies, 639 of them are voting, and May needs to collect at least 320 votes. Currently, the number of its supporters does not exceed 270 people, while at least 278 will vote against, the question is whether May will be able to incline those who hesitant for the remaining days, which, according to British observers, looks unlikely.Markets, however, can take the current situation positively, because the project has passed the Cabinet of Ministers, despite a number of high-profile resignations. The pound is unlikely to continue to decline, the recent low of 1.2694 has stood and will serve as a guideline as a support, on Monday, some GBP / USD will strengthen to 1.2930 and further to 1.3015.OilOil prices continue to fall, despite some stabilization measures taken by OPEC +. A cursory glance at the reason for the fall in quotations indicates the introduction of sanctions against Iran, but upon closer examination, this argument does not stand up to criticism. The growth in production of some OPEC countries to compensate for the loss of Iranian oil is low, and the likelihood of a new agreement to restrict production in a further decline in prices and is clearly a bullish factor.The reason most likely lies in the growing risks of a slowdown in the global economy. Stock indices are steadily declining, the threat of a recession in the USA is growing, which is perceived by players as a hint of the approach of a slowdown in global growth. There is a positive feedback effect when lower raw material costs lead to lower PMI indices in most countries.
A decrease in oil prices inevitably leads to a decrease in inflation, and although at the current stage, this decrease is not a problem for the Fed or the ECB, the negative trend cannot be ignored.
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