Euro hopes for growth

Eurozone

The decline in industrial production in the eurozone in November was noticeably stronger than predicted, losses amounted to 1.7% versus 0.1% growth a month earlier, a 3.3% reduction year on year, this is the worst result for the whole ECB stimulation policy.

Growth prospects in the eurozone look worse and worse, a growth of 2.5%, fixed in 2017, looks unattainable now. In 2018, GDP growth rates fell below 2%, in the current one, it is unlikely to exceed 1%. The economy has been slowed down by several negative factors, of which it is difficult to single out one as the dominant one, reduction of incentives from the ECB, crisis in Italy, trade war between the USA and China led to a general slowdown in world trade, protests in France, hard prospects Brexit. The problems in the automotive industry in Germany are a long list. All of these problems in one way or another contributed to a decline in business activity; composite PMI fell faster than in most developed countries.

Nevertheless, the prospects for the euro are not so gloomy, and they depend primarily on how the market regards the likelihood of an ECB rate hike this year. There are grounds for such expectations despite the slowdown in inflation, wage growth rates are high, and this is now the main factor behind the growth of the euro.

Wage growth suggests that inflation will also accelerate, albeit at low rates. By the end of 2019 (autumn of 2018, when inflation slowed down under the influence of several factors at once), price increases will become more stable, and the ECB will have grounds for a rate increase.

Such a scenario now dominates, which means that a reciprocal movement is planned between the euro and the dollar. Even a one-time rate increase may be decisive in light of the fact that the Fed, by contrast, may lower the rate by the end of the year due to the impending recession. This scenario has an obvious weakness, the business slowdown may accelerate, and wage growth will have to say goodbye, but for now, the markets prefer to track current trends that are in favor of the euro.

Today, EUR / USD is neutral, 1.1449 is likely to stand, a bit more likely to rise above 1.1490.

Great Britain

The pound rose on Theresa May's comments on Monday, but growth cannot be considered sustainable. the Brexit parliamentary vote can both raise and lower the pound. If the number of opponents of the agreement does not exceed 100 people, a resistance test of 1.30 is possible, otherwise, GBP / USD may decline to 1.2750.

Oil and Ruble

In December, oil reacted with a noticeable delay to the decision of OPEC + to cut production in the first half of 2019, and in order to clarify, OPEC plans to inform the markets about specific levels of reduction. OPEC probably wants to be less dependent on general market or even speculative market conditions, since both the rise in prices at the end of December and the recent correction were due to external factors. The resumption of trade negotiations between the US and China and the publication of a noticeable decline in imports and exports in China.

The threat of a faster than expected slowdown in the growth of the global economy is still relevant. China is likely to be forced to resort to additional measures aimed at stimulating the domestic market in all developed countries, including the UK, the United States, and Germany, and industrial output is declining, which creates an additional threat in the form of lower energy demand.

Immediate prospects are favorable, in January Brent will try to go above the December high of 63.70, but stronger growth is still unlikely. The balance will most likely form in the range of $ 60 - $ 65 per barrel unless some new factors intervene.

The Bank of Russia today resumes the purchase of currency within the framework of the budget rule, this may put some bearish pressure on the ruble, however, given the record surplus of the current account, easing is unlikely to be noticeable. The ruble feels confident, the upper limit of the 67.3 range is likely to stand, more likely to decline to 66.50, followed by a 65.90 target in the next 1-2 weeks.