The meeting of the ECB, the euro is too strong

Of the euro area

The most important event of the coming week is the ECB meeting on Thursday, the 26th of October. Investors expect that the regulator will finally announce a reduction of asset purchase program, and the whole question is only in the volume of the reduction. At the present time, the purchases monthly amount of 60 billion euros per month, and this plan will remain in effect until December, and then the program can be reduced to 40 or even 30 billion euros per month, and the euro is going to react with the growth or reduction if the result is better or worse than expected.

During the two-day EU summit in Brussels, leaders of European states discussed the situation with the negotiations on «brexit». Rather difficult position was expressed by Angela Merkel — the european UNION will continue negotiations as if London has officially confirmed its obligations towards the EU. It is a sum of 60 billion euro, and the european UNION rigidity about the case puts pressure on the book and supports the euro, because it calls into question London’s desire to maintain a privileged status on access to markets of the EU during the transitional period of two years.

Tuesday, preliminary PMI index Markit data for the month of October for the euro area will be published. Since the month of August 2016, the index is on the rise in the level of six years ago, the acute, which increases the probability to surpass the growth of GDP relative to the forecasts and gives additional arguments in favor of a more aggressive form of change in the monetary policy of the ECB.

Also, the markets should pay attention to the output of the IFO indices for Germany on Wednesday. The ZEW survey published last week showed an increase of expectations, the IFO outlook is favorable, and the data may support the euro.

The demand for the dollar is driven mainly by expectations of reforms in the tax code, while in the euro area, the majority of macroeconomic indicators are on the rise. This equalizes the chances of the euro against the dollar, and, very probably, the coming week will prove to be very slippery, but the reason for the exit of the trading range is unlikely to appear earlier Thursday.

United Kingdom

The volume of retail sales in September unexpectedly declined 0.8% compared to August, year-on-year growth has slowed, from 2.3% to 1.2%. The book has reacted to the data with a decline, but it has been limited, as it is unlikely to influence the plans of the Bank of England to increase rates at the next meeting.

Looking at the dynamics of retail sales, based on historical data, one can clearly see a positive outcome after the failure of 2015.

On Wednesday, the first preliminary read on GDP growth in the third quarter will be published, as well as the MBA mortgage report. In anticipation of the meeting of the Bank of England on 2 November, the market will form expectations for the book, and, currently, the high probability of a rate increase of a quarter of a point does not support the price of the British currency. The Inflation is in large part a consequence of the rise in import prices as a sign of the power of the consumer market, and, therefore, the actions of the Bank of England could well lead to a deterioration in financial conditions.

There is no reason to expect the pound to the upside in the short term, the probability of a decline below the support of 1.30 remain fairly high.


The weekly report from Baker Hughes showed again a decline in active drilling rigs, which has contributed to the growth of oil prices at the end of the week. The market is also waiting for the OPEC meeting in November in Vienna, where the question of the extension of the agreement on the limitation of the production to the end of 2018 will be discussed.

The formation of the crest is just below 60 dollars a barrel until it is finished. Bear the form factor of the probability of growth of production in the united states against the backdrop of the growth of [roces does not work, that the producers of shale are experiencing serious difficulties with the increasing cost of price. The probability of movement is above 60 dollars a barrel Brent price still seems high.

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