Oil

Russia is shifting its focus towards China to become its primary oil supplier which increases the cost of hydrocarbons for Europe, according to research agency FG Energy. According to the company’s report, Russia can increase shipments to China by 200K barrels in 2018, while at the same time, it will drop by 160K barrels for Europe.

There is a reason to believe that the growth of global demand will be the main motive of bullish sentiments on the market given that the situation on the supply side has formed a stalemate. OPEC did its best, while shale companies took advantage of concessions of the cartel boosting production. Production in the US should soon exceed Russia and Saudi Arabia by volume and current oil prices create a favourable situation for this.

Today, the market may be sensitive to EIA data on hydrocarbon reserves and refinery capacity utilization, considering that not all traders have returned to the trading desks and the market lacks liquidity. Also, attention should be paid to how the temporary catalysts for growth have changed including supply disruptions from Libya, Nigeria the failure of Forties pipeline. Soon they may disappear and the attempts of the bears to sell the market again will be noticeable.

Euro

The European currency took a pause after the rapid pre-New Year growth as traders hurried to take long positions, counting on the new successes of the Eurozone economy and as a consequence the ECB’s more aggressive position.

On Tuesday, the euro reached a 4-month high at 1.2081, recording a 3 percent increase since mid-December. EUR/USD is preparing to break through the September peak at 1.21, which could create a psychological basis for the pair’s growth in 2018. However, the characteristic activity of buyers before the holidays became a clear signal of a long-term rally in the new year.

The statistics showed that the Eurozone’s manufacturing sector is in better shape over the past 20 years, which convinced investors of the expediency of buying the euro. Despite the ECB’s reluctance to start a conversation about the curtailment of the policy, investors hope that a strong economy will sooner or later push the CB to this idea. The market was alarmed by the announcement of Benoir Couire, a representative of the Central Bank responsible for operations in the open market, who stated that “there is a reasonable chance” that the purchase of bonds may not be extended after September. At the same time, the representative of the ECB with the right to vote, Evald Nowotny supported this position, saying that the ECB could complete the easing policy this year if the economy continues to grow at a high pace.

Later today, investors will pay attention to the minutes of the FED meeting, which is likely to show caution to the regulator in the forecasts for 2018 amid uncertainties related to fiscal reform and a mysteriously low inflation. On Friday, the Dollar may be hit by NFP report, which is likely to show increased employment in the pre-holiday period.

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