On Wednesday, markets practically did not react to the publication of the minutes of the FOMC meeting on December 13, believing that the information contained in it was largely outdated. Indeed, after the meeting, the draft tax reform was adopted in both chambers of Congress and signed by President Trump, which significantly changes economic expectations. It should also be noted that Janet Yellen will soon leave his post, the Cabinet is waiting for a scheduled rotation, which can change the alignment of forces in the ranks of "hawks" and "pigeons."
Nevertheless, the weak market reaction still allowed the dollar to strengthen somewhat after publication.
Eurozone
The growth of the euro in the last weeks of December was largely due to the deterioration of the dollar's position amid some frustration with the results of the FOMC meeting. Prior to the meeting, there was a possibility that the Cabinet would reserve the possibility of 4 rate increases in 2018, but the FOMC forecast remained unchanged, which led to profit-taking by bulls.
Nevertheless, the spread of returns in the coming year will change in favor of the dollar. According to the forecast of the FOMC, the rate will be raised three times, and three more times in 2019, which will give a cumulative increase of 1.5% to the current range. The ECB, by the end of the year, intends only to abandon the repurchase of assets, and if the rate rises, then not earlier than 2019.
The ECB is likely to openly talk about the normalization of monetary policy after it sees the market reaction to the start of the tax reform in the US. One of the goals of the reform is the repatriation of capital in the amount of at least $ 2 trillion, a large part of which is currently concentrated in Europe. Given the significant trade surplus and imbalance in growth rates between the countries of the north and south of Europe, the ECB is interested in reducing the demand for the euro, and therefore will not prevent the withdrawal of excess capital from the eurozone.
Thus, the external background at the moment is almost completely determined by the reaction of the market to the situation in the United States. The publication on Friday of the report on the labor market will determine whether the euro is able to overcome the maximum of the year (1.2095) and develop an upward movement, or still give way to the dollar initiative.
As for internal factors, on Friday, preliminary data on inflation for December will be published, negative expectations, the forecast to reduce inflation to 1.3% against 1.5% in November.
In general, we assume that the euro will not be able to update its maximum and in the coming days a turn to the south will begin.
The United Kingdom
The pound follows the trend of general market trends, strengthening against the background of the weakness of the dollar, but its own growth drivers are rather weak. The growth of business activity slows down, in the construction sector in December to 52.2p against 53.1p a month earlier, in the manufacturing sector - 56.3p against 58.2p.
Activity in the services sector is 54.2p, slightly higher than 53.8p in November, but lower than the average level of 2017. The Brexit factor is currently in the background, at least until the resumption of negotiations in Brussels.
The pound will wait for the publication of non-businesses on Friday, depending on the outcome. The week may end either near the current levels or by the beginning of the move to support 1.13050.
Oil and the ruble
Oil has risen to its maximum for more than 2.5 years, growth is supported by a number of factors. First of all, this is a long reaction of the market to the reduction of production by the OPEC + countries. The balancing of demand and supply is expected by the summer of 2018 and the market behaves in accordance with the forecast. Also, the opposition tries to organize a riot in Iran, but the effect of this factor will be short-lived.
More important is the growth of business activity in China and a number of European countries, which will lead to increased demand for oil. Brent managed to reach the level of 68 dollars per barrel. The momentum has not been realized yet. The probability to reach $ 70 per barrel in the long-term week is quite high.
The Russian ruble has come close to support of 57 rubles/dollar. The demand for the ruble is supported by optimistic estimates regarding the outlook for economic growth in 2018. Slowing the inflow of investments in 3 square meters. 2017 is completed and the forecasts for GDP growth this year exceed the level of 2%. The government will take a number of measures aimed at increasing consumption.
The demand for the ruble should increase, and if the Ministry of Finance does not increase the volume of currency purchases, it is possible to strengthen the ruble to 56.50 rubles/dollar already next week.
