Euro has bad prospects

Eurozone GDP data released on Tuesday showed a significant decline, indicating that the European economy was probably at its peak of growth, which could also indicate that the global economy began to slow down after a noticeable rise in the wake of a decade-old growth after the hardest crisis of 2008-09.

The presented data showed a strong drop in GDP growth in the third quarter in annual terms to 1.7% against the forecast of a decline to 1.9% from 2.2%. The quarterly value of the macro indicator showed an increase of only 0.2% versus 0.4% earlier. This is the third recent data that clearly indicate that the world's largest economies have stopped growing and may have already begun to decline, not only against the background of the end of the ten-year economic cycle, but also, probably, under the influence of trade wars that were in the spring years inspired by the United States.

At first, according to previously published data, the Chinese economy began to show a slowdown, then the States joined this process, and on Tuesday, it became clear that big Europe in the form of the eurozone could not avoid it. Against the background of this event, and also influenced by the news that A. Merkel, the current German chancellor, is leaving the post of head of her party, the single currency was under pressure.

In our opinion, if the slowdown of the European economy continues, the ECB will face a practically insoluble problem that simply may not allow the bank to begin the process of raising interest rates, as the Fed has done in the past few years. Recall that the European regulator decided only to stop stimulating measures (QE), but it will be difficult for it to start the interest rate increase cycle next year due to the likely decline in economic growth, which could cause the region to slip into the "deflationary pit" following the example of this happened to the Japanese economy in the 90s of the twentieth century. In this case, the ECB will find it extremely difficult to solve crisis problems, which will unambiguously arise on the wave of a fall in economic growth simply by lowering the cost of borrowing, since they are already at zero, and the deposit rate of the regulator is negative.

Taking into account such prospects, we believe that the European currency can start serious problems with the prospect of exchange rate growth, primarily against the US dollar.

Forecast of the day:

The currency pair EUR / USD is trading at the level of 1.1340. It is under pressure due to the slowdown of economic growth in the euro area and the fall in the prospects that the ECB will raise interest rates next year. Fixing the price below this mark may lead to its fall to 1.1300, and then to 1.1250.

The currency pair GBP / USD is trading at the level of 1.2700. It is experiencing problems due to Brexit's unresolved, as well as a clear inhibition of economic growth in Britain and a decrease in inflationary pressure, which reduces the likelihood of an increase in interest rates by the Bank of England in the near foreseeable future. Against this background, if the pair consolidates below 1.2700, there is a chance that it will continue to fall to 1.2660 and 1.2600.



The material has been provided by InstaForex Company -