The most important event of the upcoming week is the ECB meeting on Thursday, October 26. Investors expect that the regulator will finally announce a reduction in the asset purchase program, and the whole issue consists only in the volume of the reduction. At the moment, monthly purchases amount to 60 billion euros a month, and this regime will remain in effect until December, then the program can be reduced to 40 or even 30 billion euros a month, and the euro will react with growth or decline if the result is better or worse than expected.
At the two-day EU summit in Brussels, the leaders of European states reviewed the situation with the negotiations on Brexit. A rather tough stance was expressed by Angela Merkel- the EU will continue negotiations only if London officially confirms its obligations to the EU. This is a sum of 60 billion euros, and the EU’s rigidity regarding the matter puts pressure on the pound and supports the euro, since it calls into question London’s desire to maintain a privileged status on access to EU markets during the two-year transition period.
On Tuesday, preliminary PMI Markit data for October for the euro area will be published. Since August 2016, the index is on the rise at the level of six-year highs, which increases the probability of outperforming GDP growth relative to forecasts and gives additional arguments in favor of a more aggressive change in the ECB monetary policy.
Also, markets should pay attention to the release of the IFO indices for Germany on Wednesday. The ZEW index published last week showed an increase in economic expectations, so the IFO outlook is favorable, and the data can support the euro.
Demand for the dollar is supported mainly by the expectations of reforms in the tax code, while in the eurozone the majority of macroeconomic indicators are on the rise. This equalizes the odds of the euro against the dollar, and, most likely, the coming week will prove to be quite dragging, but the reason for the exit from the trading range is unlikely to appear earlier than Thursday.
The volume of retail sales in September unexpectedly decreased by 0.8% compared to August, year on year growth slowed from 2.3% to 1.2%. The pound reacted to the data with a decline, but it was limited, since it is unlikely to influence the plans of the Bank of England to raise the rate at the next meeting.
Looking at the dynamics of retail sales based on historical data, one can clearly see a positive result after the failure of 2015.
On Wednesday, the first preliminary reading on GDP growth in the third quarter will be published, as well as the MBA mortgage lending report. In anticipation of the meeting of the Bank of England on November 2, the market will form expectations for the pound, and currently the high probability of a rate increase of a quarter point does not support the prices of the British currency. Inflation is largely a consequence of higher import prices than a sign of the strength of the consumer market, and therefore the actions of the Bank of England may well lead to a deterioration in financial conditions.
There is no reason to expect the pound to rise in the short term, the probability of a decline below support of 1.30 remains fairly high.
The weekly report of Baker Hughes again showed a decrease in active drilling rigs, which contributed to the growth of oil prices by the close of the week. The market is also waiting for the OPEC meeting in November in Vienna, where the issue of prolonging the agreement on limiting production to the end of 2018 will be discussed.
The formation of the peak is just below $ 60 per barrel until it is completed. Bearish factor in the form of the probability of production growth in the US against the backdrop of the growth of [roces does not work, as shale producers are experiencing serious difficulties with the growing cost price. The probability of movement is above 60 dollars per barrel for Brent looks still high.