The sharply increased heat in the Brexit negotiations, after the dismissal of two British ministers, has strongly shaken both, the European currency and the British pound itself. This morning however, ECB representative Francois Villeroy de Galhau in Tokyo said, “If we were to have a no-deal scenario, which we don’t wish, we are prepared on the European side,”
Moreover, I will support the euro, as well as the sale of the US dollar itself, provoked less “hawkish” rhetoric of the Federal Reserve representatives. Last week, Jerome Powell, Chair of the Federal Reserve, prompted global economic growth due to a slowdown in the global economy, and the Federal Reserve needed to consider global trends. Which can potentially dictate the reduction of the tightening of the monetary policy of the Federal Reserve.
This coming week is not saturated with important and volatile releases from the United States. Mainly, construction sector reports. Therefore, the main driver will be a possible change in the mood of the Federal representatives, which may increase the pressure on the US dollar.
Europe this week is more generous with volatile events and reports. Therefore, from Monday to Tuesday, a meeting of the Eurozone and EU finance ministers will be held. The Italian budget and the separation from Britain are the key issues at the moment. On Thursday, the protocol of the ECB meeting on the monetary policy will be published.
Friday will tell us about the GDP of the first EU economy - Germany. We will also learn about business activity in the whole Eurozone, both in the manufacturing and services sectors, as well as the composite index. In general, no one expects a positive from these reports.
At the moment, the upward movement of the euro can be described as a correction in the framework of the downward long-term, against the background of the weakening US dollar. It is too early to talk about a possible trend change, due to the exhausted dollar.
Last week, the British pound sterling fell by more than 2% in one day. The sharply increased degree of distrust in the British government towards its prime minister may end with a new election. The process of agreeing to a project of a separation deal with the EU is at an impasse. After the dismissal of two ministers, the conservative party can collect enough votes to vote for a vote of no confidence in its prime minister. Such radical measures will plunge the government of Great Britain into an even greater crisis.
If suddenly, Theresa May wins the election, general elections are more and more inevitable. Partners of May, namely the Irish Democratic Party, opposed the current draft of the deal, after the prime minister made public all points of the deal in parliament. Which may end with the departure of the Irish Democrats from the government.
The scenario of the general elections is approaching the deadlines for leaving the European Union, creates even more chaos, increasing the risk of Brexit without an agreement. Against the backdrop of slowed inflation and retail sales, the pound will be difficult to regain an upward movement.
After a record decline, black gold found support from OPEC. In addition, the growth in the number of rigs has slowed, as reported by Baker Hughes last Friday.
The largest exporter of OPEC said that oil producers should cut production by 1 million barrels per day. This cancels the June agreement to increase production, agreed to curb rising prices. Negotiations are preliminary and do not contain official statements. The final decision will be made in early December in Vienna.
The producer group is increasingly concerned about the possibility of oversupply in the market, which will continue to push the price down. Therefore, OPEC intends to take the calculations as close as possible to the real production in the world at the moment. Previously, for the calculations of production cuts, the 2016 data was taken.
In general, the correction is quite normal, especially after such a strong bearish rally. The key resistance is 58.00. Stable growth in production in the United States is under pressure, although speculators may begin to lay the upcoming cuts in production by OPEC and OPEC + countries.