FX.co ★ European media are starting to worry about integration

EUR/USD, GBP/USD

Events on the forex market continue to evolve in their own way - the euro and the pound sterling were sold against positive news. In Germany, the trade balance in November increased from 19.9 billion euros to 22.3 billion euros, the forecast was 20.7 billion euros, industrial production grew by 3.4% while the expectation was at 1.9%. The unemployment rate in the euro area declined in November to 8.7% from 8.8%. The trade balance of France was worse than the forecast - the negative balance increased from -5.3 billion euros (revised for a decline from -5.0 billion euros) to -5.7 billion. The euro weakened as business media reported that investors were concerned about the uncertainty in the plans for integration of the euro area, as well as many issues provoked by parallel negotiations of Angela Merkel with the governments of other countries.

Data on the US came out weaker than expected, but this did not stop the fall of the counter dollar currencies. The index of optimism in small businesses in December decreased from 107.5 to 104.9 with the expectation of growth at 108.4, the number of open vacancies in the labor market, excluding the agricultural sector, decreased from October's indicator of 5.93 million (revised down from 6, 00 million) to 5.88 million with the expectation of an increase to 6.05 million. However, the stock market ignored the data, respectively, and they did not affect the dollar. The stock index S&P 500 added 0.13% while the Dow Jones gained 0.41%.

Today, economic indicators for Europe are expected to be less optimistic. Industrial production in France in December is projected to decline by 0.4%. The commodity trade balance of the UK for November is projected at -11.0 billion pounds against -10.8 billion in October. Industrial production in Great Britain for the same month may show an increase of 0.4%, production in the construction sector is expected to increase by 0.5%.

In the US, December import prices are projected to increase by 0.4% after 0.7% in November. At 14:00 London time, the final estimate of wholesale inventories for November, the forecast does not imply change: 0.7%. At 17:00, the US Treasury will hold an auction on the placement of 10-year bonds worth $20 billion. This year, the US will significantly need external attraction of borrowed funds, and, it seems to us, it will be more sensitive to the dollar exchange rate before weeks and in weeks of voluminous placements, as it was in 2014-16. In such periods, the dollar should show strength. At the moment, the US debt stands at 20.456 trillion dollars and investors are looking forward to raising the ceiling of the public debt. Earlier, D. Trump reported that Congress completely agrees with this action.

We are waiting for the euro in the range of 1.1810/20, while the pound sterling at 1.3450 and further in the range of 1.3380-1.3400.

USD/JPY

On Tuesday, the Bank of Japan unexpectedly announced that it reduced the volume of purchases of long-term government bonds with a maturity of 10 to 40 years by 20 billion yen. In this regard, the yen lost 42 points. The candidacy of Haruhiko Kuroda, according to Prime Minister S. Abe, remains predominant in the selection of the new head of the Central Bank. We doubt that Kuroda really fulfilled the quantitative easing program, and from the very beginning, at the stage of its planning, with such a large-scale QE, shifting the entire burden of state and corporate debt to the Central Bank's balance with completely failed goals for economy and inflation, will unlikely cause government approval. We think that yesterday's QE reduction is an overdue step, and is done quietly, and Kuroda will be replaced. We believe that investors are also considering this course of events and are slowly putting it into prices.

Yesterday, data on wages were good: the average salary in November increased from 0.2% y/y to 0.9% y/y, the level of paid overtime showed an increase of 2.6% against expectations of 0.6%. The index of household confidence fell to 44.7 from 44.9, the forecast assumed a growth to 45.1.

This morning, Chinese indicators came out weaker than expected. The consumer price index in December increased by 0.3% against the forecast of 0.4%, on an annualized basis, the CPI was 1.8% against expectations of 1.9% y/y. The Chinese stock market is still growing, the Japanese Nikkei 225 is losing 0.18%.

We assume that the yen will decline to the level of 111.65.