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Market Review July 3, 2014

July 3, 2014

The struggle with low inflation in the Euro zone becomes more complicated. Recent data show reduction of the index of manufacturers prices by 0.1%, and the figure has been falling 5 months in a row. More over: comparing to May of last year the prices have dropped by 1%. So it is hard to expect any growth of prices on consumer goods, what is supported by a minuscule June inflation around 0.5%.

 

Against this background more and more often we hear claims to the ECB to start acting more in order to bring inflation to acceptable levels. In recent interview to business paper “Les Echos” French prime minister of France Manuel Valls called the ECB for the start purchasing assets (in other words for QE), and mentioned that the monetary policy is not just interest rates management.

 

Paris sentiments are quite clear because on the other side of La Manche the Bank of England has provided quite successful stimulating programs, what enabled the economy to show growth of 0.8% by results of the first quarter. Also French prime minister reminded for the second time about the necessity of a cheaper Euro rate as a measure of exporters support, especially in conditions of quite weak growth in the Euro zone.

 

Earlier Draghi also confirmed the fact that expensive Euro negatively affects inflation. Perhaps there was a hope that after June decisions the currency is going to start depreciating. But the markets accepted the ECB measures in a different way, crediting of the banks is not likely to get to financial markets and such an important package of actions diminishes the probability of QE launch at least in the coming months.

 

PPI fall could be ascribed to energy prices downgrading, but even without it the figure wouldn’t be able to start growing. It is worth mentioning, that a lot of factors affect the PPI: high unemployment, demand issues, slow growth of salaries, and even problems of receiving credit in a bank.

 

That is why current struggle against inflation is perhaps one of the biggest challenges in the ECB history.

 TECHNICAL ANALYSIS

EUR/USD

 

The Euro is just above support at 1.3640. It is quite likely that the currency has fallen into the trading range between the aforementioned support line and resistance on the upside.

USD/JPY

 

Around 101.45 the pair has rebounded. After an impressive ascent the currency continues growing. On current levels there is resistance, which is going to open the way to 102.13 if overcome.

GBP/USD

 

So eventually the Pound has started to consolidate taking one’s breath after an impressive rally. If the rate withstands on current levels the upward trend will resume in a while.

 

 

 

 

ECONOMIC CALENDAR

 

All Day     Holiday  United States – Independence Day – Early close at 13:00

 

01:00    AUD  RBA Governor Stevens Speaks            

01:00    CNY  Chinese Non-Manufacturing PMI 

01:30    AUD  Building Approvals (MoM) 

01:30    AUD  Retail Sales (MoM) 

01:45    CNY  Chinese HSBC Services PMI   

07:13    EUR  Spanish Services PMI   

07:45    EUR  Italian Services PMI   

07:50    EUR  French Services PMI   

07:55    EUR  German Services PMI 

08:00    EUR  Services PMI   

08:30    GBP  Services PMI   

09:00    EUR  Retail Sales (MoM)      

11:45    EUR  Interest Rate Decision    

12:30    CAD  Trade Balance      

12:30    EUR  ECB Press Conference             

12:30    USD  Initial Jobless Claims    

12:30    USD  Nonfarm Payrolls      

12:30    USD  Private Nonfarm Payrolls    

12:30    USD  Trade Balance      

12:30    USD  Unemployment Rate    

14:00    USD  ISM Non-Manufacturing Employment       

14:00    USD  ISM Non-Manufacturing PMI