Eurozone
The ECB will begin 2018 in a desperate struggle for the current level of the euro, as the need to complete a super-soft monetary policy becomes apparent.
The eurozone's GDP is growing steadily, the labor market has a positive dynamic, the trade balance is confidently adept. Inflation remains below the target, but negative dynamics has been overcome, and deflation at this stage of the economy of the eurozone is under pressure. The rise in the cost of energy resources supports the growth of consumer prices. In 2018, according to the opinion of both the ECB and a number of major banks, such as Danske Bank, the root value of inflation will remain stable or even slightly increase.
Under these conditions, a reduction in the program on the repurchase of assets from 60 to 30 billion euros appears to be a measure that is clearly inadequate, and the market comprehends this. The next step is to break out of negative interest rates, but the ECB continues to struggle desperately in preventing the growth of yields of government bonds as well as the rise of the euro.
The ECB, most likely, will begin to change its rhetoric into a more hawkish one only if the tax reform in the US starts to influence the situation towards a more positive direction and will increase the demand for the dollar.
The euro will not be able to resume its movement to 1.20 and, most likely, will begin to decline. The release of macroeconomic data at the beginning of the first week of 2018 are expected to be neutral, the market will unlikely exit the state of stability.
United Kingdom
The British pound played all that it could in order to win, and will end the year without any idea that it can lead itself out of the range.
Nevertheless, negotiations on Brexit by the end of the year came to an expected intermediate result. Brussels has shown resolve, and Britain will not receive any special status after leaving the EU. Besides, it will have to pay a round sum, the amounts of which will be determined in the next phase of the negotiations.
In any case, the emerging situation does not contribute to the enthusiasm of the bulls. The Bank of England could go for another rate hike in 2018, but there is no economic basis for tightening the policy. The growth of inflation, given the low level of income, will cease by itself. The GDP growth rate is weak, the trade balance is deteriorating, the labor market is questionable - that's the end of the year with such results. While it is supported by rising prices for raw materials, however, in the event of an increase in anti-risk sentiment, the pound would be able to withdraw to 1.32 in the first half of January. An apparent weakness of the dollar, which is not taken into account by the market, would be the only factor that could abolish this scenario.
Oil
Brent crude oil, as expected, has updated its two-year high, a resistance storm of $70/bbl is on the line. There are many reasons for the growth in the demand for oil, and at the moment, the question is urgent - where is the growth limit? Do we observe the balancing of the market or, conversely, speculative growth?
The answer is provided by the graph below, which compares the growth of consumer inflation in the US and the dynamics of domestic prices for gasoline.
Most of the time, gasoline prices increased at a rate near the overall price growth. By 2008, the first oil bubble occurred, which led to a rapid collapse of prices. The second bubble with a subsequent correction to the normal level took place in 2014.
At the moment, the price of gasoline (and therefore oil) is growing faster than the general inflation. This means that oil growth is excessive and is more speculative rather than following the balance of supply and demand. The question should be put this way - do speculators have the power to create a third bubble?
The balance of oil prices is in the range of 50-60 dollars per barrel, this is a market objective range, and therefore it is impossible to confidently forecast the growth of oil in 2018 given its current stage.