The unemployment rate in the eurozone fell to a minimum for more than 9 years, resulting to 8.6%. Meanwhile, the December result was reduced from 8.7% to 8.6%, which indicates a steady growth in the economy. At the same time, the overall level remains quite high due to the strong segregation by countries. In particular, the Czech Republic unemployment rate is only 2.4 %%, while in Italy it’s 11.1%, and in Greece it’s at 20.9%.
At the same time, retail sales in Germany declined by 0.7% for the month of January while producer prices in the eurozone as a whole rose by just 1.5% over the year, which does not add optimism to attempts to raise consumer inflation.
On Thursday, the ECB will hold a meeting on monetary policy. The results do not cause any particular concern, since the chances for some cardinal changes, according to the market, are small. The dull opposition between the hawks and doves will continue. Its results will take the form of another compromise by «doing nothing». With this, Draghi can provide some clarity regarding the pace of exit from the procurement program but the ECB’s position will not change with regard to rates.
Another thing is politics. On Sunday, two major events will take place at once, which can bring about significant changes in the current alignment of forces. In Italy, there will be parliamentary elections with a probable the emergence of an opposition parliament. This will raise the level of spending and as a result, a budget deficit may occur which can negatively affect the quotations of the euro. In Germany, the results of the coalition vote will be announced, which, most likely, will allow to maintain the current political configuration although it does not like all the participants.
The euro was ready to continue the decline but the fall in markets and the likely weakening of the dollar could once again return interest to purchases. Going beyond the consolidation zone of 1.2150 / 2550 is unlikely and the quotes will gravitate to the upper boundary of the range.
The British pound continues to remain under pressure amid escalation of contradictions in the negotiations on the issue of Britain’s withdrawal from the European Union. On Friday, Prime Minister Theresa May announced that she will adhere to five principles that will regulate new trade relations with the EU. These are obligations to ensure fair competition, an independent arbitration mechanism, an ongoing dialogue, and a data protection agreement. All the items are feasible and do not contain any ultimatum requirements and so, the tension in the negotiations can gradually go away, which will lead to an increase in demand for the pound.
At the same time, macroeconomic indicators continue to remain weak. The PMI IHS Markit / CIPS index fell in January to 55.2p against 55.3p a month earlier, the lowest for the last 8 months. Frankly, this indicates a weak economic growth.
On Monday, the most important release of the week will be held — PMI Markit index in the services sector. The forecast is moderately positive. This publication along with the news around the negotiation process will determine the internal drivers for the pound, which so far remain negative. The pound could not take advantage of the dollar sale at the end of the week, which indicates its fundamental weakening.
The pound may approach the lower border of the channel at 1.3520 by the end of the week if it does not find a new driver to resume growth.
Quotations of oil are largely influenced by news from the US. The growth of stocks and increased production have a deterrent effect on players. Also, purchases have declined because of the threat of a global slowdown, which inevitably follows a large-scale drop in markets if Trump implements a threat to raise duties on steel and aluminum.
The equilibrium price for the emerging wedge is at the level of $ 65 / bbl. To exit, you need a reassessment of risks, which may well occur next week.