Daily Market Review - 12/18/2013

Market Overview

Recent European statistics once again reflects all woes of European economy. After the fall of industrial production in Germany and Italy the overall European index has also fell by -1.1%. Energy field suffered the most, as well as production of durable goods. In general, industrial production is contracting the second month in a row, what has become the biggest downfall from September 2012. It will definitely influence on data for the 4th quarter.

Recent research shows, that Consumer Sentiment Index has become negative dynamics for the first time a year. Hence, in the coming months we have all chances to see further exacerbation of problems in retail. Production sector will also react to that by volume reduction. Growth of GDP of the EU states constituted only 0.1%, so quite soon it can become negative.

At that according to survey in October and November there was positive dynamics. That is why a lot of market participants didn't expect such bad figures that came out eventually. It is important to take to account the fact, that industry has started to dip also against the background of ECB contraction of interest rate, while a lot hoped that such measure would somehow stimulate the economy. Now pressure on regulator will grow again, because after a few months like that and there might be a new recession.

Last OECD report showed that EU would be the weakest link of global economy by results of the 3rd quarter. Meanwhile the ECB doesn't intend to undertake any stimulating measures directly. On Thursday Draghi mentioned again, that LTRO could help to prevent crisis, but money almost didn't reach the real sector of economy. Last time banks rushed to speculate on percentage discrepancy, what could bring down the rates on bonds, but turned out to be useless in terms of credit expanding.

Draghi stated again, that he didn't see any symptoms of deflation, but admitted that there's a lengthy period on low inflation ahead. Another piece of news: Eurobonds will be also included into stress-tests. It can be a real problem for a lot of banks, because the ECB is going to check these assets along with others, and banks will have to demonstrate capital sufficiency.

TECHNICAL ANLYSIS

EUR/USD

Correction of the Euro continues. Nevertheless there is obviously a slowdown in the downward trend. Regardless of that the near term outlook still looks bearish.

USD/JPY

It seems that the trend of the pair has finally become more clear. The trend line along with a channel line could be projected. They both act as resistance on the upside and support on the downside.

GBP/USD

The pair is ranged. It is hard to forecast anything in the short term. But as for a bigger picture, current pattern suggests consolidation. Thus prior bullish trend is likely to resume afterwards.

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