Daily Market Review - 06/18/2014

EUR/USD

The Euro is in the trading range as has been expected. At the current moment it is almost exactly in the middle between the lines. So consolidation is very smooth, thus there is no forecast regarding further trend development.

USD/JPY

The pair has rebounded from 101.6. Apparently it has turned into trend reversal. The long term goal for the upward advancement might be the peak at 102.70.

GBP/USD

The Pound is slightly beneath 1.7000, but it looks like there is consolidation instead of emerging retracement. So it is quite possible that soon we’ll see an attempt to overcome the height again. The chances that it will be successful are quite high.

Market Overview

The week for the EURUSD hasn’t start too well. The data on May inflation came out without changes and indices of sentiment in Germany and Euro zone were down. Earlier in the overviews there was a concern expressed that the measures announced by the ECB on last meeting might not have an expected result. The thing is that the ECB is relying on stimulating crediting by banks.

A negative rate and attractive conditions of renewed LTRO must at last move credit market, which has been reducing monthly for almost 2 years. There is only one problem: insufficient demand on credits and concern of the banks, which are afraid to expand their portfolios at the expense of unreliable borrowers.

The problem is in the excessive crediting in the South of Europe. For instance in Portugal by results of 2013 the debt load of private sector comprised almost 220% of the GDP. In conditions of high unemployment and a few programs of reducing governmental spending there is nothing strange in the existing volumes of nonpayment on credits. And now all plans to reduce the debt load are crushed by low inflation.

More over the motto of all structural reforms is raising of competitiveness of lagging economies of the Euro zone through mechanism of costs lowering, what eventually leads to prices fall. Though at low inflation these processes pass much tougher, what has risks of turning into decades of stagnation. At the same time as recent surveys show investors look positively into the future.

There is a feeling that risk is simply underestimated. Basically there is no abrupt improvement in the Euro zone. The sharp faze of the crisis has passed, but the GDP has been fluctuating around 0. One shouldn’t forget about toughening of fiscal rules. The full launch of mechanisms of “budget union” is set for 2016, what will lead to partial loss of financial independence of EU zone sates.

Economic Calendar

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