China and the United States concluded the current trade negotiations with a "first phase deal," which the markets see as a relative victory for the United States. However, changes will be made to the text before the official signing, but it is now clear that China is doubling its purchases of American agricultural products over the next two years, and is also committed to protecting intellectual property, opening up the financial services market and not "manipulating the currency."
In turn, the markets evaluate the outcome of the negotiations positively, while the demand for protective instruments will continue to decline.
EUR/USD
The strong growth of European PMI indices gave reason to hope that the peak of the crisis has been passed and strong growth will be recorded in the 4th quarter. But it is not clear whether there is a turning point or expectations at this stage are too optimistic. The German economy has suffered more than others, and therefore the probability of an equally rapid recovery will support the euro.
On the other hand, the ECB left monetary policy unchanged at its meeting on December 12. The changes in forecasts are small and the ECB, at the current stage, considers it to be weak, and the risks prone to decrease.
Most market participants are skeptical about the ECB forecast for GDP at 1.1%, because a noticeable acceleration of quarterly growth rates is needed to reach this level, which is not yet observed. Meanwhile, inflation forecast until 2022 remains below the target of 2%, and it is obvious that the internal discussion at the ECB, though no longer public, has not disappeared - there are too many hints that many members of the Governing Council are looking for ways to get rid of the side effects of super soft monetary policy.
At the same time, Lagarde ignored many important points regarding the upcoming strategic review of the European economy during a press conference. Thus, the market reacted rather sluggishly to the results of the meeting.
EUR/USD continues to maintain a weak bullish mood. It is supported by the growth of the pound and the reduction of uncertainty on Brexit, as well as the increased probability of a US-China trade deal. By the end of the week, the euro reached a strong resistance of 1.12. Now, a test of this level is likely in the next day, and then continue to support 1.1100 / 10.
GBP/USD
Conservatives won an absolute majority in the general election held on December 12, which gives Boris Johnson the right to pass through parliament a decision to leave the EU before Christmas.
Labor lost 59 seats, Jeremy Corbyn resigns, and now the final episode of the Games around Brexit is getting practical content. The exit from the EU is scheduled for January 31, and ratification of this exit will take place in 2020. The probability of such a development of events is, according to most experts, at least 90%.
The following question comes to the fore: future relations between the UK and the EU. Trade negotiations should be completed by December 31, 2020. However, this period seems to be insufficient (for example, negotiations with Canada on a similar agreement dragged on for 7 years, and another 11 months took full ratification). These considerations indicate a high probability of extending the transition period.
The likely consequences of the Tory victory for the British economy and Bank of England's actions are becoming less hazy. If the exit is issued on January 31, the uncertainty will decrease, which will enable BoE to make adjustments to its monetary policy. At the end of January, the current term of office of Mark Carney expires, which can either remain on the chair for a new term, or leave the chair. The probability of a rate cut in 2020 is still estimated to be low, but the probability of a one-time increase has increased, which ultimately provides the pound with additional support.
As a result, the pound rose 2.7% immediately after the publication of the first election results, followed by a correction. Technically, the pound retains its strength, strong support is in the zone 1.3100 / 30, and consolidation above 1.3381 opens the way to 1.4385 and 1.40, but in fact, there are no strong resistance. The pound also remains in a bullish mood. Thus, it is logical to use correctional reductions for purchases.
