01.04.2014 - The risk of deflation in the euro area is growing

The first trading session of the week ended with growth of the major U.S. stock indexes. Traders reacted positively to the statement of the head of the Federal Reserve Janet Yellen in which she pointed out the support of the quantitative easing program and stated that rates will remain at low levels for a long period of time. Mrs. Yellen also pointed out the weaknesses in the labor market - a large number of part-time workers, slow wage growth and a drop in the proportion of the working population in the country. At the same time, PMI Chicago in March totaled 55.9, compared with an expected 59.2.

On this background, the quotes, of euro showed growth, but could not continue it. Pressure on the euro had a negative data on inflation in the euro area, which dropped to 0.5% vs. 0.6% expected and the previous figure at 0.7%. Growth of deflation risks increases the likelihood simulative measures by the ECB, which will lead to a drop in price of the euro. We maintain long-term and medium-term negative outlook for the euro. Today the course of trading can be influenced by data on unemployment in Germany (7:55 GMT) and the Eurozone (09:00 GMT), and manufacturing PMI of the Eurozone (08:00 GMT) and the U.S. (14:00 GMT). It is worth noting that tomorrow will be released the data on GDP growth in the euro area, and on Thursday will be announced the ECB's decision on interest rates.

The price of the British pound has continued the upward movement amid weakening U.S. dollar, as well as stable data on lending in the UK, where in February was granted 2.3 billion of loans to individuals. Today, the course of trading may be affected by data on the manufacturing PMI of the UK (8:30 GMT). We expect continued growth of the British pound in the medium and long term, but in the near future the price can be corrected to the level of 1.6600.

The price of USD/JPY has continued to increase amid weakening dollar. The manufacturing PMI in Japan has grown to 17, with an expected growth to 19, non-manufacturing PMI rose by 4 points to 24. At the same time, the average wage has not changed, although was expected a decline by 0.1%. Loose monetary policy of the Bank of Japan gives its results, and we expect a further increase of the monetary base of the country and the weakening of the national currency in the medium and long term.

The growth of price of the Australian dollar was caused by a statement of the Reserve Bank of Australia, which left interest rates unchanged at 2.50% and indicated the high exchange rate of the Australian dollar. In addition, investors cautiously interpreted statistics on the manufacturing PMI in China, which according to a HSBC fell to 48.0 that is 0.5 worse than expectations and the previous figure. At the moment we see no strength of bulls and expect a decrease in price of the Australian dollar in the near future.

The price of the New Zealand dollar continues to consolidate in the corridor 0,8650-0,8700. Statistics on the production sector in China does not contribute the further growth of prices and considering the continued growth during the previous weeks, there is a great probability of correction, after which the growth can continue. We maintain a positive medium-term outlook for the New Zealand dollar.

The price of U.S. benchmark Light Sweet crude oil continues to consolidate above the level of 101.00 dollars per barrel. Despite the increase in production in Iraq and an increase in exports from Iran, oil prices continue to stay at high levels due to possible sanctions against Russia from the West and the reduction of supplies from Libya, where the conflict continues between the government and the rebels. We maintain a long-term negative outlook for oil.

Despite our expectations, the price of gold continued to decline. Drop in metal prices did not stop after the statement of Janet Yellen and the weakening of the U.S. dollar. At the moment the price is consolidating near 1285 dollars per troy ounce. Price decline below 1265-1275 is unlikely. One of the main reasons for the decline of prices is the weak demand for physical gold in Asia. We maintain a long-term positive outlook for gold.

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