The Euro came under fresh pressure yesterday and touched a level which was not seen in nearly nine years. It makes you wonder how low the euro can go before the ECB deliver their decision next week on the quantitative easing program. It seems like that another obstacle could be coming in Mr Draghi’s path who is very eager to start the bond purchase program in the euro zone but is constantly challenged by Germany. The country has previously questioned the power of the ECB which it has in its mandate and has lodged a formal complaint to the European court of justice about the OMT program. If the country does win their case in the European court this could change the game for the ECB altogether because not only that they will struggle to find a solution to unwind the OMT program which could push the euro back up, but they will also struggle with any future decision.
However, the advisor to the European court who will deliver his decision on this matter to the court may not cause too much of turmoil, purely because the European court is going to make their mind on this affair during the first half of this year, but for the time being, it could certainly be enough to make investors wary about their short positions.
The Grexit is fuelling up every day as both sides are gearing up their arguments and more rumours are hitting the market. Nevertheless, the bias remain that Greece will not leave the euro and both parties perhaps have to reverse their battle of comments to find a common ground under which the stability of the euro will not questioned in future.
Crud and Brent which made yet another new low yesterday are recovering some of their losses today, as traders are mainly focus towards the upcoming crude inventory data, which is due later in the day. They certainly do not want to be caught on the wrong side of the trade and will prefer to take some profit off the table, just incase if the inventory data does not have a reading which favour their short positions. However, it is still hard to think of a scenario which could suggest that perhaps the fundamentals have changed.
Even yesterday we had the officials from Kuwait confirming that there is nearly 1.8 mb/d of extra supply of oil in the market and this echoed what Qatar said a day before but provided a slightly higher number of 2mb/d of extra supply. At the same instance, we have UAE which is saying that they are ready to increase their production to 3.5mb/d by 2017 and it seems they are not afraid about the crash in oil price.
Perhaps it may not be easy for traders to actually anticipate to wind up their short completely unless the price of crude falls below 40 dollar because at that level most of the Canadian oil producers will also stop their oil production. Although, the U.S. has produced more oil in the month of December as compared to November, and the oil production is still increasing buy at the slowest pace and it could stop by the first half of this year. So in summary, we think there are still a few more months for the oil price to stay under pressure before it actually starts bouncing back up