Macroeconomic indicators do not provide any support to the euro, despite the fact that they are published in line with expectations.
Preliminary data on GDP growth rates in Q1 amounted to 2.5%, which is an excellent result against the backdrop of a six-month slowdown in the main research on business activity in the Eurozone. According to the ZEW, its index of economic sentiment rose to 2.4p in May against 1.9p a month earlier, the growth of industrial production in annual terms in March was 2.0%, this is higher than February 2.6%, and inflation of 1.2% — it is significantly lower than the target set by the ECB.
The euro is weakening against the dollar in just over a month, and in the short term, there are few reasons to expect an upward reversal. The main reason is still the growth of the yield spread in favor of the dollar, as the market is confident in the ability of the Fed to withstand the plan to normalize rates, which can not be said about the ECB in the ranks of which there are serious differences.
The most developed Eurozone countries, such as Germany and France, have long called for a more active completion of the stimulus program, and the heads of the Bundesbank and the Bank of France directly call for tougher wording in monetary policy statements in order to guide investors to the 2nd quarter of 2018.
Until the end of the week, there is no reason to expect that the bulls on the euro will be able to seize the initiative. The rise in geopolitical tensions in favor of the dollar, as well as the rapid rise in oil prices, as it increases costs for the European industry. The euro will continue to decline, the nearest targets are 1.1650 and 1.1550, the first of them may fall by the evening of Friday.
The British pound managed to stabilize at the level of its January lows due to both rising oil and its own macroeconomic indicators. The labor market report published on Tuesday came out according to the forecasts — the unemployment rate did not change and remained at 4.2%, the average wage increased by 1 point to 2.9% from 2.8%, however, taking into account premiums, growth slowed from 2.8% to 2.6% , and this is a bad sign for the pound, as the chances of rising inflation are falling.
The pound, unlike the euro, has good prospects to stop the decline. Despite the fact that the dollar looks stronger at its current stage, a corrective recovery is likely towards 1.3710/50, if the risk appetite in the markets continues, and oil will continue to grow. At the same time, the pound will remain under pressure in the long term.
The monthly report of the IEA published on Wednesday did not have any impact on the mood of the players, although a number of its provisions are of fundamental interest for the oil market.
For the first time since 2014, world reserves have fallen below the 5-year average, the situation is aggravated by serious problems in Venezuela and a strong increase in risks after the withdrawal of the US from the Iranian nuclear deal. The IEA also raised the forecast for oil production outside OPEC, which may indirectly indicate the desire of American shale workers to compensate for falling volumes, but the desire does not mean an opportunity.
Europe is sharply opposed to the termination of cooperation with Iran, since the entire strategy of the Trump administration is equivalent to the introduction of sanctions against Europe, which has already led to the emergence of plans to transfer trade with Iran to the euro. All these factors are frankly bullish, and the probability of oil prices above $80 per barrel by the end of the week becomes obvious.