Market Overview

26 February 2016

WEEKLY REVIEW: A small glimmer of an interest rate hike by the Fed in March?

It might be a small glimmer of an interest rate hike by the Fed in March. The U.S. Commerce Department released gross domestic product (GDP) figures on Friday. The personal consumption expenditures (PCE) price index excluding food and energy rose 0.3% in January, beating forecasts of a 0.2% increase, after a 0.1% gain in December. It was the largest rise since January 2012. On a yearly basis, the PCE price index excluding food and index jumped to 1.7% in January from 1.5% in December. It was the largest increase since July 2014.

But the economic data remain mixed. Markit economics' preliminary services purchasing managers' index (PMI) data showed this week that the activity in the U.S. services sector contracted in February.

Market participants are awaiting the release of the U.S. labour market data next week. The weak labour market data could bury an interest rate hike in March.

Oil prices were volatile again this week. Oil prices were supported by news that Russia, Saudi Arabia, Qatar and Venezuela plan to meet in mid-March to discuss the freeze of the oil production at January levels.

Oil prices are likely to remain volatile until a deal on an oil output cut is reached.

Low oil prices weigh on inflation. The European Central Bank (ECB) is likely to add further stimulus measures as it said that downside risks rose since the beginning of the current year. The ECB could cut its deposit rate further or expand its monthly asset purchases.

Speculation on further monetary policy easing is likely to weigh on the euro.

It is likely that the currency pair EURUSD will rise toward the resistance level at $1.1100, if the U.S. economic data will be negative or there will be negative news from China and no negative news from the Eurozone.

If the U.S. economic data will be positive and in case of the negative news from the Eurozone, the currency pair EURUSD may test the support level at $1.0900 or $1.0800.

Konstantin Meinhardt
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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