The ECB is closely monitoring inflation

Financial and commodity markets analytics

Market Watch review. 21.10.2020

In today's release, we’ll cover the following topics:

  • Inflation is a priority for the ECB. 
  • Brexit – the EU's response on readiness for dialogue 24/7. 
  • The inflation report in Canada. 
  • The oil reserves in the United States. 

The world's largest central banks continue to actively print money in an attempt to save the economy during the quarantine period. At the same time, purchasing power falls, holding back the rise in prices. But an uncontrolled injection of liquidity will inevitably lead to an increase in inflation, and already now all representatives of the ECB are talking about the importance of this issue. So Christine Lagarde stated that price stability is at the center of the central bank's focus and work. Then the Сhief economist of the ECB said that the golden mean for the economy is low inflation, but above zero.

Most likely, all these statements are aimed at weakening the EUR, however, the demand for the EUR/USD pair remains quite high even above the technical resistance level of 1.1850. Although active purchases in the market are no longer advisable, since a significant part of the upward potential has already been exhausted.

And now let's move on to the incredibly long-drawn-out Brexit negotiations, or rather not even to negotiations, but to manipulation. We have already said that Britain calls on the EU for flexibility and constructive dialogue, and now London has received a response from the President of the European Council confirming its readiness for dialogue 24/7. At the same time, he makes it clear to Britain that the European Union needs a deal, but not at any cost.

Despite the fact that it is not yet possible to talk about any success in the negotiations, and even more so about an increase in the probability of reaching a consensus in the framework of a global Brexit deal, the demand for GBP has increased significantly. By the middle of the European trading session, the GBP/USD pair added more than 90 points and reached the previous high. Yes, purchases on the market are no longer appropriate, but it is extremely difficult to exclude further growth.

Shifting to the US trading session, I will note the upcoming publication of the inflation report in Canada. Even a slight excess of the projected growth rate and the absence of a further decline in oil prices can support CAD. Of course, sales in the black gold market can compensate for any optimism from the inflation data, thereby weakening the CAD.

Completing today's review, I would like to remind you of the forthcoming publication of data on changes in oil reserves in the USA. Economists predict growth within 500 thousand barrels — this is a very small growth, but unexpectedly strong excess of the forecast may put quite serious pressure on oil quotations and, as a consequence, on the Canadian dollar.

Closely monitor the news background and be prepared for all the surprises of the market.