Forex. Euro/dollar forecast (EUR/USD)
The week began with the fall of the pair’s quotations from the level of 1.1430 to 1.1320 due to the cancellation of the parliamentary ratification of the Brexit agreement on Tuesday. After rising to 1.1375 on Wednesday, another pullback followed the meeting of the Governing Council of the European Central Bank. As a result, the pair ended Friday’s session at 1.1305 due to low business performance in the Eurozone.
At a meeting on Thursday, the European Central Bank announced the end of the quantitative easing program. Reinvestment of bond repayments will continue to be continued to provide liquidity when interest rates rise. The rates themselves are expected to remain at the same levels.
There is a good reason why the regulator keeps the key rate at zero. The growth of the euro is able to limit the rate of inflation in the Eurozone, so the European Central Bank will try to restrain its currency if the Federal Reserve takes a course on easing monetary policy at the meeting on December 19 or early next Year. The emphasis on risks is an indicator that the bank has returned to a pessimistic outlook, although the forecasts of economic growth and inflation have not been adjusted, and asset purchases will soon be completed.
According to experts, the euro paired with the dollar may well rise to the level of 1.2000 on the difference in monetary policy of the two countries. This will happen if the actions and rhetoric of the members of the Federal Reserve regarding the interest rate will be restrained, and representatives of the European regulator, on the contrary, move to a gradual increase in rates in the second half of 2019.
The growth potential of the euro against the dollar is able to solve the Italian budget crisis, the prospects of which were outlined last week. The Italian Government and the European Commission continued to negotiate an adjusted draft budget for the country, whose deficit was reduced from 2.4% to 2.04% of GDP, while the concept of unconditional basic income remained unchanged. On Friday, Giuseppe Conte, Italy’s prime minister, said a final agreement would be reached at the weekend and a consensus on the budget deficit had already been found.
However, Giuseppe Conte also presented to the European Commission two national economic plans, one of which concerns the security of the territory and the other – reducing the time to consider civil and criminal cases. He asked the Commission not to include their expenditures in the country’s overall budget so that the plans could be implemented without increasing the deficit. The lack of compromise on this issue can slow down the growth of the pair’s quotations due to the continuation of the budget epic.
The index of economic sentiment in Germany in December, according to the Center for European Economic Research, showed an improvement in sentiment among German investors, rising to -17.5. However, macroeconomic statistics for the week ended remained generally a neutral factor for the pair, who were more sensitive to the news component.
Next week, investors will focus on the consumer price index in the Eurozone, on the basis of which it will be possible to draw conclusions about the rate of inflation in November. It is expected that the indicator will remain at the same level of growth of 2.0%, which is one of the highest values of recent times, and therefore may be support for the euro against the dollar.
In our forecast for the coming week we assume that the US currency will show growth against the European against the background of the increase of the key rate by the Federal Reserve on December 19. We expect the euro/dollar pair to decline to support levels of 1.1280, 1.1265, 1.1240, 1.1210 and 1.1185.
Forex. Pound/dollar currency pair forecast (GBP/USD)
Last week, the pound/dollar pair started a sharp pullback from the level of 1.2760 to 1.2525, followed by a recovery on Thursday to 1.2660.
The weekly trading closed at 1.2575 amid the negative news context on Brexit. The reason for the rapid decline in quotations at the beginning of the week was the cancellation of the parliamentary vote on the ratification of the Brexit agreement, scheduled for Tuesday. It was argued that the agreement reached with the European Union on the status of Northern Ireland was not supported by many political forces in the United Kingdom. The prospect of the resignation of the government and the UK’s exit from the community without a contract led to the sell-off of the pound by traders. The new Brexit vote will take place around January 21, 2019.
The recovery of the British currency against the US in midweek was caused by the victory of Theresa May, the British Prime Minister, in the vote of Conservative MPs on a vote of no confidence with a margin of 83 votes. The market welcomed the fact that May will remain in the prime minister’s chair for the next year, considering it a guarantee of maintaining at least relative political stability.
The rhetoric of European politicians about the prospects of Brexit at the EU summit at the end of the week forced the market to take a wait-and-see attitude, hindering the uptrend of the pound/dollar pair. German Chancellor Angela Merkel expressed the opinion that due to problems with ratification of the agreement in the British Parliament, the EU should prepare for a hard Brexit. However, the European Union, as noted by Merkel, still insists on the agreement reached with Theresa May. EU Council President Donald Tusk has said the agreement on the UK’s exit from the European Union will not be renegotiated. And the head of the European Commission Jean-Claude Juncker called “slurred” proposals of Theresa May, made during the talks at the summit in Brussels. All this has led traders to question the implementation of the mutually beneficial Brexit scenario.
From macroeconomic statistics released last week, the number of open vacancies in the U.S. labor market in October contributed to the correctional growth of the pair. The index increased, while being worse than expected. Investors continued to react negatively to the American labor statistics. This is one of the key factors that will take into account the Federal Reserve in deciding whether to raise rates.
British labour statistics, by contrast, supported the pound in tandem with the dollar. The change in the average wage in October was 3.3%, which is a ten-year high, although the consensus forecast assumed a decline to 3%.
In the coming week will publish the consumer price index in the UK for November, which can stimulate the downtrend of the pair due to the likely fall to the minimum value of 2018.
In our forecast for the coming week we assume that against the background of the December meeting of the Federal Reserve and the difficult situation around Brexit, the pound/dollar pair will continue to decline to the support levels of 1.2530, 1.2500, 1.2475, 1.2450 and 1.2425.
Forex. Gold price forecast
All last week gold quotes decreased. The price of a troy ounce fell from the level of 1254 dollars per troy ounce to 1242 dollars by the end of trading on Friday.
The pullback of gold quotations took place against the background of the recovery of the dollar and profit-taking by traders. At the end of the week, the dollar index held at 18-month highs at 97.50, largely due to the sharp fall in the euro due to weak reporting on the eurozone business activity index. The report on the Chinese economy was lower than forecasts, which was the impetus of support for the dollar in the face of unwillingness of investors to take risks.
The downward trend for gold quotations was also caused by a decrease in fears of a trade confrontation between the United States and China. According to The Wall Street Journal, Beijing intends to change the industrial policy, called Washington protectionist, and provide greater market access for American companies. The first steps have already been taken in this direction. According to media reports, Beijing has decided to postpone for ten years the implementation of a number of goals within the framework of the program aimed at the development of high-tech industries. China National Petroleum Corporation, the parent company of PetroChina, has suspended investment in the Iranian oil and gas field due to U.S. sanctions against Iran. China also bought two million tons of soybeans from the United States, ending an unofficial ban on imports of these products, which was in effect during the last agricultural season.
Changes in tariff measures also play against gold. According to the Chinese Ministry of Finance, Beijing will suspend additional 25 percent duties on 144 types of relevant U.S. products and 5 percent on another 67 types of automotive goods for the period from January 1 to 31 March. The gold rate also fell amid news that the Chinese government is preparing to reduce to 15% from the current 40% duty on imports of cars from the United States.
However, on the side of gold quotations continues to advocate the decline in the yield of government debt bonds, reflecting the departure of investors from the risk zone, against which there are sell-offs of shares of American companies. The decline of stock indices is another factor of pressure on the dollar, so far a full rally is out of the question, and shares without a news background are traded in a sideways trend, stimulating the growth of gold.
Neutral news on Inflation in the U.S. in November also generally supported gold. On Wednesday, the U.S. Department of Labor said that the consumer price index in November remained unchanged from the previous month. According to the consensus forecast, the growth of this indicator should have been 0.1%. The slowdown in inflation confirms the federal Reserve’s forecasts of a possible slowdown in the rate of interest rate hike next year, which will negatively affect the dollar.
On Wednesday, December 19, the last meeting of the Fed will take place in the outgoing year, at which a decision will be made on the change of the key rate and guidelines can be given on the further monetary policy of the regulator. Probably the fourth increase in the rate this year from the current level of 2.25% to 2.50%. But about the prospects for 2019, everything is not so optimistic for the U.S. currency. Experts agree that there could be only one rate hike instead of the previous four. A slower rate of increase in the key rate will contribute to the growth of gold prices.
In our forecast for the coming week, we expect the reduction of gold quotations to the support levels of 1240, 1238, 1235, 1232 and 1228 dollars per troy ounce due to the high chances of tightening the policy of the Federal Reserve at the meeting on Wednesday.
Forex. North American Oil Forecast (WTI)
Last week, oil quotes again took a course to decline. The price of a barrel of WTI crude oil reached a weekly low of $5,109 on Friday.
The price slump came amid growing fears of global energy demand due to the expected recession of the global economy. The Vienna opec meeting did not change the downward dynamics of prices without traders’ confidence in the balance between supply and demand in the commodity market. A 1.2 million-barrel-per-day production cut is likely to be insufficient for the oil rally, but will help stabilize commodity prices in the long run.
On Wednesday, OPEC’s monthly report was released, according to which world oil reserves increased by 7.6 million barrels in October, which was the fourth consecutive month of growth. OPEC has also raised expectations of an increase in raw materials supplies from non-representative countries in 2018 and 2019. The forecast was changed due to the announced restriction of oil production in Canada and the agreement of OPEC countries to reduce raw materials production in early 2019. The main increase in supplies in the coming year will be the Share of the United States, Brazil, Russia and the United Kingdom. The OPEC report did not dispel doubts about the oversupply of raw materials in the market, which led to a decline in oil quotations.
On Thursday, the price of a barrel rose after the publication of a report by the International Energy Agency, according to which the restoration of the balance between supply and demand in the world commodity market will happen faster than previously thought. The forecast for 2019 was maintained at 1.4 million barrels per day, but oil shortages are expected in the second quarter of next year, although as early as the November report there was talk of oversupply over demand all next year. This is relevant provided that there will be an agreement to limit oil production within the framework of OPEC from January 2019.
On Wednesday, the U.S. Department of Energy reported that oil inventories fell by 1.2 million barrels last week, though analysts on average expected a decline of 2.8 million. The market reacted to this information with a decrease on the background of the report of the International Energy Agency, which supported the quotes.
According to Baker Hughes, the number of active oil drilling rigs has not changed at the end of last week, their number is still 877, which is a neutral factor for oil quotes.
On Tuesday evening, the American Petroleum Institute’s report on commercial reserves of raw materials in the United States is expected to be published, which is released on the eve of the release of official data from the Department of Energy on Wednesday. Official data from the Ministry of Energy will be known on Wednesday, analysts expect a decline in reserves by 2.99 million barrels, which can support oil prices, as the trend to reduce oil production in the United States continues.
In the coming week, we expect the development of a downtrend of oil quotes with testing of support levels of 50.85, 50.60, 50.30 and 50.00 and 49.75 dollars per barrel.
Forex. Cryptocurrency forecast
Last week, the virtual currency market tested the next lows. The starting price of Bitcoin $3,580 at the beginning of the week was replaced by a local minimum of $3,230 on Saturday. Ethereum started the week with a pullback of 93 to 88 dollars, later reaching 83. XPR fell to support level of 0.2800 at the end of the week.
Against the background of the collapse in the digital asset market, Bitcoin volatility has more than tripled over the past month, reaching 6% against the dollar. The last time the volatility of the benchmark cryptocurrency was at a similar level in mid-March this year, when Bitcoin was trading in the region of 8770 dollars. The increase in volatility is an indicator of pessimistic expectations of investors, which puts pressure on the market of virtual currencies.
The general negative state of the cryptocurrency market is exacerbated by the crisis situation in the mining sector. The income of miners in the Bitcoin network has more than halved in the last month. To cover their expenses, miners began to sell off cryptocurrency reserves, thus contributing to the further decline of the market.
Another reason for the sell-off is the financing of the war of hashrates after the hard fork Bitcoin Cash, which became one of the catalysts of the current state of affairs in the cryptocurrency industry. Current market strategies can be traced to the example of trading recently launched on the Swiss exchange SIX Swiss Stock Exchange multi-cryptocurrency ETP. ETP trading volume increases when the price of Bitcoin falls and decreases when it rises, which indicates the purchase of assets after a strong market decline, as most users buy the product rather than trade it.
Thus, the market recovery can be expected only at the end of the sell-off, when investors will start to think about further sale of reserves for earnings on the spread. And at the moment, trading volumes of this investment product have reached record values, which shows the high interest of traders in the market of digital currencies, despite all the events of the last two months.
The news background in recent days has been extremely unstable, positive news alternated with negative. In general, in the face of a downtrend, positive news has less impact on the market than having negative connotations, as investors tend to reinsurance.
Among the events encouraging, we can mention the likely entry of the Japanese cryptocurrency exchange Coincheck to the U.S. market, and the news of the appearance in the browser Opera built-in Ethereum-wallet.
The negative adds to the news that the U.S. Securities and Exchange Commission imposed sanctions on cryptocurrency bank AriseBank and its founders due to allegations of fraud.
In our forecast for the coming week we assume the continuation of the downward trend in the virtual currency market. Bitcoin can test support levels of 3100, 3030, 2960, 2910 and $2,870. Support is likely for Ethereum at $82, 80, 77, 75 and $72. XPR may continue to decline to 0.2790, 0.2750, 0.2710, 0.2670 and $0.2600.