Daily Market Review - 03/19/2014

EUR/USD

The pair continues to recover after a dip of two last days of the past week. It faces resistance at 1.3935. Most likely the pair is going to correct itself and we are going to see a retracement.

USD/JPY

The pair continues to consolidate in the narrow range. Analysts at the moment restrain from any specific comments. It makes more sense to wait for the pair to break outside either boundary

GBP/USD

The Pound at the moment looks bearish. Support on the downside is near 1.6551. A break below it will push the currency further down. Resistance on the upside is near 1.6660.

Market Review

Tentative data on European inflation turned out to be not too precise. The figure was revised from 0.8% to 0.7%. At that the base inflation which includes a more volatile dynamics of prices for energy sources and food, has remained on the same level of 1%. As a reminder at last meeting the ECB head Draghi didn’t change the monetary policy particularly because of satisfactory initial data on February inflation.

Earlier in October when inflation dropped to 0.7% for the first time, the ECB undertook a historical action and lowered the key rate to the absolute minimum of 0.25%. Meanwhile the ECB is denying deflation risks. But if inflation continues to remain on current levels during March as well, then Draghi will have to take actions. It is not ruled out that the rate will be downloaded to 0.1%.

At the moment out of 18 EU states the negative dynamics of prices index is seen in 4 states: Cyprus (-1.3%), Greece (-0.9%), Portugal and Slovakia (-0.1% each). A few more states have approached the red line: in Ireland and Spain yearly inflation is at 0.1%. In general such state of things can make things difficult for governments to lower the debt load, and consumers can take a break hoping for further prices decline.

At last German court announced the final decision on notorious case about compliance of European stabilizing mechanism (ESM) 500 billion Euros to the main law of the country. Earlier a lot in Bundestag expressed their indignation that the parliamentary control on the German budget had been lost, as funds allocation is on sub national level. But the court sided with Merkel.

Recent statistics from Europe shows the downgrade of indices of economic expectations both in Germany and in EU in general. Reduction of German index of wholesale prices is concerning, as it might suggest a dangerous contraction of inflation. The other negative event was an abrupt fall of Italian trade balance, what might severely complicate the work of new government: economic recovery continues to stagnate.

Economic Calendar

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