The market is one step away from sliding into scandal

The oil assets have retained the high chance to retake $30 mark

The market trading had been running smoothly throughout the week before it was affected significantly by the situation around the UK’s possible leaving the EU. By the extent of the speculative impact, the Mayor’s of London statement to campaign for «Brexit» outshined protocols of the FRS meetings, oil negotiations, and all other statistics information. Regardless of whether Boris Johnson’s backing campaign for leaving the EU was thoroughly planned or was connected with his leadership ambitions, the pound dropped down to 3 per cent, after he made his statement. That fall negated a gain for pound made on 20th of February when the EU leaders agreed that if the UK voted to remain in the EU, it would have special status with regard to migration policy (brake in migrant welfare payments for up to 7 years).

The Mayor of London in his newspaper article has argued that the UK’s membership in the EU is detrimental to the Parliament’s sovereignty, especially when it comes to the employment, border control and human rights issues. Under the information provided by the House of Commons, approximately 15-50 per cent of the current British legislation is dependent on the EU issues that the politician considers as the EU’s «legal colonization» and penetration into all the spheres of the British politics. It is assumed that the conflict with Scotland will not probably arise with regard to this issue as Scotland will vote in the same way as England. Anyway, it is the voters who would have made a decision by the end of June this year but the active psychological influence on the voters is seemed to enter a new phase.

While the oil has become more expensive facing the large producers which will potentially start fighting with oversupply in the market, the oil negotiations, public and private, secret or open, have not led to change the general price trend. The four states – parties to the agreement have been already extracting the volume of oil which is relatively close to reach its peak. Therefore, the decision about the freezing of the oil production on the current level will not change anything in the interests’ allocation. Moreover, Saudi Arabia does not seek to curtail oil production. The oil assets have retained the high chance to retake $30 mark.

While there is the corporate reporting period in the USA, it is worth looking at the chemical and oil-refining enterprises. The statements of the FRS officials which will be issued next week are aimed at improving the impression about published minutes of the FOMC meetings and traditionally awkward Yellen’s statement. The current economic situation in the USA is seemed to be a steady one, and therefore there are some attempts to «explain» the extraordinary growth of the labour force along with the simultaneous fall in the production, deflation trends, problems with shaly field, fall in imports facing the expensive dollar.

The Federal Reserve System has become responsive to the current conditions on the treasury securities and futures markets. If the American economy continues to develop in such a way, the treasury securities will not lead to foreseeable profitability, the securities market will remain falling, and neither the FRS policy will change in March, nor the interests rates will be raised in June. In any case all the FRS officials should be listened to carefully.

China cuts taxes levied on the individual construction transactions in an attempt to support the real estate market. Homeowners, except those living in megapolis, are also exempt from paying of taxes on business objects which were sold after two years from the purchase date. The profitability of the Japanese bonds reached a new record regardless the fact that it was not the main result of the current policy. The main aim was yen devaluation and Nikkei index’s growth. On the facts, the opposite result was achieved. Regarding the majority of population take savings in banks, salaries do not grow, a third of Japanese citizens receive pension benefits, the negative interest rates are alien to Japan. There are consecutive recession, demographical crisis, deflation risks and permanently growing state’s debt. Japan is reasonably assumed to experience default within several next years. Nowadays, while it is clear that the internal demand is steadily weak in Japan, everybody has expectation from the export which can only be supported by devaluation.

Yen seeks to be strengthened as a safe asset, but the attempt to reach 113.00 mark was unsuccessful due to the intervention of the sellers of the futures on Nikkei index and the futures of the other Asian investment funds. Due to speculative Stop Loss the pair dropped down to 112.00. Currently there are no serious hurdles for potential yen strengthening. It is expected to reach in wide flat 113.35-111.75.

Last week the investors traded actively pound, yen and commodity currencies, but today euro is the most preferred currency. It was affected not only by the «English» factor. Purchasing Managers Indexes for the Eurozone in February appear to be weak, and all the other data which will be published next week will also be negative. By the Friday it would have become clear how reasonable would have been deflation concerns of the European Central Bank.

EUR/USD: is traded now on its previous level 1.1050, which has been remaining steady for almost two months, but if due to lower rates the pair falls, then it will foreseeably drop down to 1.0800 . There are some tensions in optional trade around 1.1100. Intraday support: 1.1030-1.1060; 1.1015; 1.1010-1.0990 (very strong). Intraday resistances: 1.1100-1.1130; 1.1150-1.1170. It is predictable that it will fall down further.

Author: Alexander Ward,
ForexChief Currency strategist