The ECB's difficult task

Eurozone

The focus of the euro area this week adheres with the ECB meeting on Thursday, September 7. The recent macroeconomic data shows that the ECB became evenly more difficult to stay clear from reviewing incentive policies.

European inflation increased more than expected, as the preliminary data for August indicates 1.5% growth against 1.3% in July, while core inflation remained at the same level at 1.3% compared with the forecasted decline of 1.2%.

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The business activity in the manufacturing sector remains at record highs, according to Markit, the German manufacturing PMI came in at 59.3p and 57.4p for the euro zone as a whole. Similar conclusions were received by the European Commission showing an optimistic business index in the industry, with an increase of 5.1p against 4.5p a month earlier. In the services sector, the growth was 14.9p against 14.2p, and the overall economic sentiment index reached 111.9p, which is a 10-year high.

The increase in activity against the backdrop of the development in the US political crisis contributes to the growth in prices of the euro.

The ECB meeting on Thursday will have greater attention, but the regulator is likely to evade.

Today, the Sentix trust indicator will be released, which remains to be at 10-year highs. A small downward pullback is forecasted and may cool the bulls by the euro, considerably. On Tuesday, participants should pay attention to the PMI Markit index in the services sector. In addition to the Thursday's meeting of ECB, is the expected revised data on GDP in the second quarter.

The euro remains to be the favorite pair with the dollar, though the probability of a corrective decline to 1.1780 remains high.

United Kingdom

The PMI Markit activity index rose by 56.9p in August against 55.3p a month earlier, which indicates an increase in production activity and a gradual exit from the decline of the first two-quarters of the year.

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Positive growth will add points to the hawks from the Bank of England, as it increases the chances of economic recovery in the 3rd quarter. At the moment, the alignment of forces in the oldest CBA is in favor of doves, since most of the committee members were forced to assess the possible consequences of Brexit on a negative scale. The latest news from the negotiation process again does not bring any optimism, while the third round ended in vain which means no progress being made.

The next round will begin in October after the meeting of the BoE, which will show that the negative background for Brexit will dominate.

This week, the focus will be on the PMI index in the services sector which will be released on Tuesday. While the signals are mixed, particularly in the consumption index which remained about the level of the previous months in August. But the Lloyds Bank's Business Barometer indicator fell sharply, which is a bearish signal and may help to scale down the PMI index.

The pound attempts to stay in the ascending channel, pushing off its border at 1.2770. Technically, the grounds for growth in the 1.3130 / 40 area are not bad, however, additional grounds of fundamentals will be needed to complete the scenario.

Oil and ruble

Oil finally reacted to a number of bullish signals that was ignored throughout the past week. Gasoline in the United States went up to a two-year high against the backdrop of the shutdown of several refineries, preparing a decline to a 7-year low. This eventually forced the US authorities to print strategic reserves and put 500,000 barrels in the Louisiana plant to compensate for the decline in the processing capacity.

At the same time, OPEC countries, with the preliminary calculations by Pero-Logistics shows that deliveries were reduced by 400 bbl. in a day. The production in Russia for August was cut to 1 million and 489 thousand barrels per day, which is almost 3% below the base contractual level of October 2016.

The growth of oil had a beneficial effect on the prices of the Russian ruble, which is currently falling to 57.35 rubles per dollar. Attention is also drawn to the atypical reaction of the Russian currency to the next wave of diplomatic scandal, as well as to the historical inflation minimum at 3.2% recorded last week.

The ruble has the tendency to decline to 56.1 RUB/USD in the short term.

The material has been provided by InstaForex Company - www.instaforex.com