Daily Market Review - 05/15/2014

EUR/USD

As expected the Euro is consolidating within the trading range. It turns out that it is actually becomes more narrow than within stipulated boundaries.

USD/JPY

The asset is gradually recovering after yesterday’s abrupt decline. Next resistance is at 102.16. Support is at 101.72. Anyway now the rate is only halfway near resistance.

GBP/USD

The Pound is consolidating after the decline yesterday. The bearish trend is expected to resume soon after the end of consolidation. The start of it is seen now.

Market Overview

Relatively calm news background enabled the Euro to get into correction stage. Statistics came out quite anticipated, for instance European industrial production dropped by 0.3%. Revised data on German inflation also didn’t bring any surprise, in comparison with March the prices have dropped by 0.2%. But if we take a look at yearly period then the growth of the index is 1.3%.

If we take to account an average Euro zone inflation is at 0.7% then it becomes clear why Berlin is so cautions about any stimulating measures: if the ECB exaggerates with providing additional liquidity in the economy then German inflation might increase. But monthly prices decline apparently makes Bundesbank support potential easing of the ECB policy in June.

There is information that within the ECB conditions of new program crediting aka as LTRO are discussed. Earlier the regulator didn’t create any conditions for banks on using raised funds. It was presumed that banks would buy obligation on the debt market earning on the difference of interest rates (between the bonds rate and the ECB rate on 3 year credit).

Consequently it has become clear that not all funds went in that direction. A lot of banks simply took advantage of possibility to raise cheap funds in order to cover holes in the balance. So additional liquidity was quite on time. Now the ECB might launch a program via special mechanism in order to enable banks to credit businesses by raised funds. If the program is implemented in such a way then money will go into real sector of the economy. And the ECB might just kill two birds with one stone: to stimulate growth, to give affordable financing for small business what will lead to improvement of the situation with employment.

Economic Calendar

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