Under the strong pressure from the American dollar on the rest of the major world currencies, the week ahead is very rich. The third quarter was difficult, but if the US dollar attracts the coming rise in interest rates next month, then the European currency cannot boast the same about it.
European companies showed the worst quarter in the last three years. The sluggish Eurozone economy and rising costs are affecting profits, undermining investor confidence even more. Italy is far from being the last factor, according to the latest statements by the legislators of Rome, nobody is going to change the draft budget. This may create sanctions by Brussels against Italy.
Looking at the economic calendar, let us highlight the most volatile news of the week for the main pair. Monday, as per usual, is the warm up. Someone takes profits, and someone else is planning trading strategies for the near future.
However, from Tuesday there will be a reason to trade on the news. The day will begin with the chief economist of the ECB, Peter Praet, his speeches are usually extremely volatile. He is one of those representatives of the European regulator who is able to expand the market with his statement. However, given the very deplorable state of the EU economy, such a surprise should not be expected. A little later, a meeting of the EU will be held.
On Wednesday, we will learn about the state of the EU economy. GDP data will be released in the afternoon. Separately it is worth noting the slowdown in German GDP (as expected). In quarterly terms, the indicator is expected to go to the red zone. If the data from the first EU economy is confirmed, it will negatively affect the euro. The United States on Wednesday will report on its inflation; as expected, the indicator will remain above the 2% mark, which is a target for the Federal Reserve. The base indicator on a monthly basis will grow by 0.1%, which is an extremely bullish factor confirming the possibility of an increase in interest rates next month by the US regulator.
Thursday there will be two presentations in a row held by representatives of the ECB. Benoit Coeure will speak at 15:15 (Moscow Time), and a little later, Peter Praet will continue (which was already mentioned above). The United States will publish the retail sales index, one of the main drivers of inflation. We learn about the state of import / export, production activity, retail sales, and finish the day with a literal marathon of speeches by representatives of the Federal Reserve Open Market Committee. Therefore, starting at 19:30 (Moscow Time), Federal Chairman Jerome Powell will speak, as well as the representatives of the regulator Raphael Bostic and Neel Kashkari. The day will be extremely volatile.
The week will end with the European inflation and the speech of the ECB head Mario Draghi, after which the head of the Bundesbank, Jens Weidmann, will speak in the afternoon. EU inflation stubbornly does not want to grow, which does not allow the regulator to normalize monetary policy. The United States will report industrial production.
The pound sterling also deserves attention this week. Positive signals in the negotiations on Brexit make it possible to completely work out the economic news of Great Britain. As noted by the participants in the negotiations, not only from Brussels and London, but even from Ireland, whose border was the epicenter of the EU’s disputes with Britain, an agreement could be reached soon.
We recommend to start trading with the pound on Tuesday. At 12:30 (Moscow time) data on the labor market will begin to appear. Wages should grow by 3.0% (from 2.7%), applications for unemployment benefits will decrease from 18.5 thousand to 4.3 thousand, unemployment will remain at a record low level (over the last 40 years), and we will find out about employment after the fact. Extremely positive news are expected for the sterling.
Wednesday will tell us about the inflation of the United Kingdom, where on an annualized basis it is expected to grow by 0.1%. Which is another bullish factor for the British pound. And on Thursday we will learn about the state of retail sales, their volume and the base index. Indicators are expected to be multidirectional, however they remain more positive than negative.
The five-day trading session will end with a view on the inflation report. In general, a very positive week for Great Britain, and for the pound sterling. Given that the negotiations regarding the separation are gaining warmer shades, the anger of Brussels is now being directed at the Italian government, the positive news (there is enough of them this week) will give the British bulls strength!
The intensity in the crude oil market is not subsiding. This morning, Saudi Arabia reported that it plans to reduce the extraction of raw materials in December by 0.5 million barrels per day. The giant exporter believes that the market is quite saturated, and the winter season is ahead, which is when there are less raw materials. Since in the winter less crude oil is used for production of fuel.
“This (price fall) is great news for the externally challenged economies of Asia like Indonesia and Philippines, India too, and helps also where inflation has been a concern, “stated the chief economist and head of research Robert Carnell, at ING Asia at Reuters. Global Market Forum today.
“It is obvious that OPEC expects shale shock, since US crude oil production reached a record 11.6 million barrels per day, and next year it will exceed the threshold of 12 million barrels per day,” added Steven Innes, head of the trading department of the pacific region in foreign exchange company Oanda in Singapore.
Meanwhile, the US is increasing production week by week. Last Friday, Baker Hughes reported an increase in the number of drilling rigs to 886 units, another record value for the last 3 years was reached by opening as many as 12 new drilling rigs. The pipeline with such capacities remains a problem for the American shalers. However, as we reported earlier, work on the construction of a new pipeline is already underway.