Investors in the foreign exchange market seem to have taken a wait-and-see attitude. After the sale of the US dollar during the first days of 2018, the markets established its stability. The dollar on this wave has recovered slightly.
The fall of the US currency ended on Tuesday, which cannot be explained through the strengthening of its positions, but by the decision of market players to take a pause ahead. Probably, there is another upward trend from major currencies against the US. The main factor that continues to stimulate the upward trend is primarily the top three major currencies which are the euro, the sterling, and the Japanese yen. With the increasing expectations that this year, the European Central Bank, the Bank of England, the Central Bank of Japan and probably other regulators, whose currencies are part of the core group, would finally decide about its plan to move away from the principles of stimulating their national economies.
Yesterday, the consumer inflation data in Germany were published. It further showed that there is no real basis for stopping stimulation in the eurozone because of the possibility of continuing the growth of inflation. The growth of the European economy is the only thing that prompts the market to assume that the ECB will decide to stop taking such measures. But based on opinions, this factor is not enough for the European regulator to confidently change its monetary rate.
On Tuesday, the consumer inflation data in Germany was published and showed that it "hung" below the target level. According to the issued data, the consumer price index (CPI) in Germany based on annual terms remained unchanged at a growth rate of 1.7%. The December value of the indicator was also unchanged at the previous rate increase by 0.6%. The corresponding consumer price index remained at the same growth mark of 1.6%.
The consumer inflation data in the euro area is expected today. It is assumed that the indicator, on an annualized basis, will further maintain its previous growth trend at 1.4%, which can be recalled well below the target level of 2.0%. The December value of the indicator is expected to increase by 0.4% against the weak growth in November by 0.1%. The basic index of consumer prices should demonstrate an annual growth in an even smaller value compared than the overall inflation rate of 0.9%.
In general, assessing the expected publication of consumer inflation figures from the euro area, it can be assumed that failure to show upward dynamics, then the ECB will find it difficult to decide on a radical change in the monetary rate. With this, the pressure would likely place on the single European currency. But, this is unlikely to lead to a noticeable fall against the dollar since the USD itself is currently in the next state of "weakness." It is expected that the euro has a potential for local growth but not more than that. Perhaps, it will again return to the sideways after this, anticipating for dynamics in relation to the American currency.
Forecast of the day:
The EUR/USD pair is consolidating above the level of 1.2200. Weaker data on consumer inflation may push it below 1.2200, which could lead to a fall to 1.2130.
The USD/CAD pair is under pressure on the wave of correction of crude oil prices. Today, the main rate is expected to increase by 0.2% to 1.25% after the CBA meeting. This probable decision has already been taken into account in market quotes and could possibly, lead to a limited growth of the pair to 1.2585.
* The presented market analysis is informative and does not constitute a guide to the transaction.
