EURO FALLS AMID BREXIT UNCERTAINTY AND SLOW GROWTH
The price of crude oil dropped to the lowest level in more than one year. This is the 7th consecutive week of declines in the oil market. Brent is now trading at $60.5, which is 30% below its YTD high. This means that the price has entered a bear market. The declines are associated to a projected slowdown in global growth and the increased production of oil. Recent data from the United States show that producers have boosted production, with inventories being at record highs. In the coming year, the US will ramp up production as more pipelines are set to open. These will ease the transportation of crude from the Permian basin and help the country reduce its oil imports.
The euro declined today after weak data from Europe. In the third quarter, Germany’s GDP contracted by minus 0.2%, which was in line with expectations. On an annual basis, the economy expanded by 1.1%. In November, the manufacturing PMI rose to 51.6, which was below the consensus estimate of 52.3. In October, the PMI rose to 52.2. In the European Union, the manufacturing PMI rose to 51.5, which was lower than the estimate of 52.0. Similarly, the services PMI in the region declined to 53.1. Investors were expecting it to drop to 53.6. These numbers from Europe reinforce the report by the European Commission that said that the EU economy will start easing. At the same time, the region’s inflation expectation dropped to the lowest level in a year. The data on inflation swaps from Bloomberg reached 1.65%, after reaching 1.77% in January.
The sterling dropped after Spain threatened to veto the proposed Brexit deal. Spain’s Prime Minister, Pedro Sanchez said that he was ready to torpedo the deal because of his concerns about Gibraltar. Yesterday, he said that Spain will need a written guarantee that Gibraltar will not be covered by any UK-EU agreement. He said that a deal will need to be hammered between London and Madrid. Yesterday, Theresa May said that she was working constructively with Spain’s PM. Sanchez responded by saying that the two sides were far apart on the issue.
The EUR/USD pair dropped to an intraday low of 1.1335 as traders continued to worry about the health of EU’s economy. Today’s low was the lowest level the pair has been since Friday last week. The price is below the important support shown below. It is also below the 30 and 60-day EMA. The momentum indicator has dropped below the neutral level of 100 while the RSI is currently at 20. The downward momentum could continue. If it does, it will likely test the important support level of 1.1300.
The GBP/USD pair declined today after fresh opposition to a Brexit deal emerged from Spain. It reached an intraday low of 1.2814. As the pair dropped, the volatility as measured by the Average True Range indicator dropped to the lowest level since November 1. This volatility is likely to be seen when the market opens on Monday because of the important meetings and votes that are scheduled for this weekend.
The price of Brent crude oil dropped to an intraday low of $60.50. This is the lowest level since November last year. On the daily chart below, the XBR/USD price is below the 200-day and 50-day EMA. The RSI has dropped to 22 while the parabolic SAR continues to predict further downward movements. The on balance volume too shows that the decline will continue. While this is highly likely, investors should pay close attention to the upcoming OPEC meeting in Vienna.