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Fading chances of Yellen to retain the post

FX:EURUSD   Euro / U.S. Dollar
Oil market

WTI declined on Wednesday but Brent continues to grow, fluctuating about a month's high, as Saudi Arabia said it is determined to end the supply surplus that has been holding prices for the third consecutive year. Energy Minister al-Falih said that the kingdom will do everything necessary to reduce oil reserves in industrial countries to an average of 5 years, letting investors know that the oil pact may have to be prolonged in order to achieve equilibrium in the market.

The data of OPEC and the International Energy Agency convince in reducing excess reserves and the positive dynamics of demand next year, but prices still can not overcome the $60 mark for the barrel, mostly due to the fact that even prolongation of the pact will not be able to offset for the production of American shale companies. Since early January, OPEC, Russia and other major oil producers have agreed to cut production by 1.8M bpd. The agreement expires in March, but officials are intensively resorting to encouraging rhetoric to keep the market's hopes for an extension of the pact.

The API data released on Tuesday showed that the US storage reserves gained 519K barrels, while the consensus assumed a decrease of 2.6M barrels. The reserves of gasoline decreased by 5.8M barrels, with a forecast of 17.000, which indicates a pickup in the pace of refining in the US.

Dollar

The dollar remains stable around a three-week high, looks particularly confident against the Japanese yen , fueled by rumors about the appointment of economist John Taylor as head of the Fed. It is worth noting that Janet Yellen adheres to all the most dovish policy views, so news about any other favorite will be a bullish signal for the dollar. The term of Yellen expires in February 2018.

Euro

Volatility in the European currency is growing before the ECB meeting in which Mario Draghi should accept a reduction in the volume of bond purchases, as well as determine the duration of the changed program. The volume of purchases can be reduced to 20 billion euros per month (hawk scenario), 30 billion euros a month (moderate) and 40 billion euros (dovish scenario). However, the main issue that investors will be concerned with is the timing of the extension of the program, which will determine the future of euro . It is worth noting that the medium-term correction for the European currency is becoming an increasingly relevant scenario.

The pair EURUSD continues to struggle for the level of 1.18 on the eve of the most important meeting of the central bank for this year.

Australian Dollar

The Australian dollar sank 0.8% against the dollar after the release of lackluster data on consumer price growth. The Central Bank of Australia has two options - to hope for tightening of the Fed's policy as a factor in further weakening of Australian dollar , or start lowering rates independently, moving in the opposite direction compared to other global counterparts.

Pound

The sudden increase in economic growth in the UK outlines the way for the Bank of England to raise rates for the first time in a decade.

The pound rose on Wednesday, thanks to GDP data, which showed stronger growth than forecasted. The dynamics of the output turned out to be the best in a year, which surprised economists and gives hope that the regulator will be less hesitant about tightening monetary policy to protect the purchasing power of the nation. Earlier, the head of the Bank of England, Mark Carney reported that the acceleration of inflation may force to raise rates, which sent the pound to 1.36 against the dollar. Then the British currency pulled back but before the meeting in the next week again gains popularity. The GBPUSD pair strengthened to 1.33. The decision to raise the rate probably still has the bit of surprise but further growth of the pound can be expected only with aggressive regulator rhetoric, which is unlikely.

Arthur Idiatulin
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This analysis is provided as general market commentary and does not constitute investment advice.
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