24.02.2014 - We expect an increase in volatility during this week
U.S. stock indexes declined slightly on the negative statistics on the housing market. Thus, existing home sales dropped to its lowest level over the past 18 months - 4.62 million against the forecast 4.73. The decline is partially due to an anomalously severe weather conditions. At the same time, on Friday, we have heard the statement of the Fed officials who emphasized further intentions to reduce the quantitative easing program in the U.S. and noted the improvement in the labor market.
On this background euro slightly increased against the U.S. dollar. In the long term, reducing of quantitative easing program and a more rapid rate of improvement in the economy in general and on the U.S. labor market should lead to a strengthening of the dollar. At the same time, economic recovery in the euro area can be called quite restrained. In the medium term, we expect further growth of quotations of EUR/USD, but growth will be limited by the closest local maximums near 1.3810. Today, the course of trading will be affected by data on business climate index in Germany and consumer inflation in the euro area. Lower inflation, may lead to increase of quotes.
The British Pound continues to correct gradually. The reason for the decline is the inflation report, which showed that price index in January for the first time in 4 years fell below the target mark of 2.0% to 1.9%. This figure confirms the words of representatives of the Bank of England concerning the fact that there is no reason to raise rates. From the point of view of fundamental analysis growth of the British pound against the U.S. dollar will continue in the medium term, but further strengthening of the British currency is limited.
Yen continues to consolidate and volatility of the pair lately is declining. The result may be a strong movement in one direction or another. The reason for the increased volatility is likely to be a large block of statistics that will be released on Friday. Thus, will be published data on the unemployment rate, consumer price inflation, household expenditures, retail sales and industrial production. In the long and medium term, we maintain our positive outlook on the USD/JPY with target price above the nearest maximum 105.40.
The price of the Australian dollar continues to consolidate as investors are rethinking the refusal of the Reserve Bank of Australia on further rate reductions. We recall that regulator's policy is still quite soft, but more action from the regulator is limited by the risk of growth in inflation. Quotes of the pair continue to be under the pressure of high unemployment, lower prices for iron ore and risks of an economic slowdown of the main trading partner - China. We expect a further reduction of price of the Australian dollar in the long and medium term. In the near future the price can push off from the support and to go upwards, but growth is limited by the resistance at 0.9070. Release of important macroeconomic data during this week is not expected.
The New Zealand Dollar continues to decline gradually. Risks concerning the future prospects of China's economic growth, continue to put pressure on prices. Purchases may be resumed near a strong level 0.8230, but in the long and medium term, we expect a drop in prices of NZD/USD.
The price of Light sweet crude oil fell after the previous growth against the decrease in inventories of distillers in the U.S., which is caused by the cold weather. Bulls were supported by news regarding the evacuation of foreign workers from South Sudan, following clashes between the government and the rebels. We maintain long-term and medium-term negative outlook for the price of oil futures.
Gold prices resumed their growth amid a weakening dollar. Bulls are supported by investors' uncertainty about the future prospects of growth in the global stock markets. On the other hand, traders are watching the dynamics of growth in China's economy, which is the largest consumer of gold and where we have recently seen a slowdown in industrial production. We maintain a long-term positive outlook for gold. In the medium term the price can reach the level of 1360 dollars per troy ounce, but growth is possible after fixation of price above 1330.