Daily Market Review - 05/27/2014

EUR/USD

The Euro is recovering from 1.3615. There is quite challenging resistance at 1.3725. If it is overcome there might be a trend reversal. Whatsoever current bounce is currently perceived as a correction of major downward trend.

USD/JPY

The pair has encountered an upward resistance at 102.00. It is quite strong and the view is backed up by current consolidation of the asset below the level. The forecast in the midterm is bearish.

GBP/USD

The Pound is trading without any distinguished pattern around the middle of the range between the levels marked on 2 hour chart. So analysts do not have consent about further trend. Therefore it is recommended to give an asset some time before the trend becomes more distinct.

Market Overview

For the first time the head of the ECB has admitted risks of deflation, but with a remark that it is possible only in case of some negative scenarios. As a reminder earlier Draghi has denied such risks at almost every press conference, referring to positive sides of low inflation. It is supposedly good for consumers to have no abrupt rates fluctuations, especially in conditions of income growth absence.

On the ECB forum in Portugal he didn’t rule out the possibility of the beginning of assets purchase in case if inflation is on low levels for too long. Apparently the ECB is contemplating on the possibility of beginning of European variant of QE. It looks like such program is necessary during the crisis.

Earlier a lot of economists have pointed out increasing risk of deflation in Europe. The thing is that if prices go down consumers and companies will begin to cut expenditures in hope to get better prices later on. As a result demand is decreasing, what moves prices down and everyone is waiting for a third downgrade, which is supporting deflation.

At such scenario debt holders’ problems exacerbate a lot. Prices’ decline and consumers’ anticipation of their even bigger fall lead to reduction of tax inflow. So if we are talking about problematic countries of the Euro zone, there is no discussion about reduction of debt load.

If recession recurs then debts will start growing in big volumes.

Economic Calendar

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