EURUSD: The euro could still unpleasantly surprise investors


The single European currency continues to be under pressure amid weak eurozone statistics. Today, EUR/USD is trading near the mark of 1.13, accepting attempts to recover from a 2-month low.


According to Eurostat, in October-December, German GDP showed zero growth in quarterly terms. This means that the largest economy in the eurozone barely managed to avoid a technical recession, which strengthens forecasts that the ECB will continue to adhere to a "soft" monetary policy this year.

Meanwhile, demand for the dollar remains high after the publication of a strong report on US consumer prices.

Despite the fact that the weakest growth rates of the indicator over the last one and a half years were recorded in January, the main attention of traders was on the growth of core inflation, which has accelerated for the third month in a row, which was supported by the greenback.

"Core inflation in the US remains stable despite fears of a possible slowdown. The current value of 2.2% year on year is higher than the 1.8% growth recorded a year ago. On the whole, the inflation report gives grounds to believe that the Fed may continue to raise the interest rate this year," according to a currency strategist of the National Australia Bank.

At present, the state budget agreement reached between the US Democrats and the Republicans is also playing against the euro, which has reduced the threat of a resumption of a "shutdown", which is positive news for the dollar.

In addition, the focus of attention is now on trade negotiations between the United States and China. At first glance, for the dollar as a safe haven, optimism on the markets is a deterrent, which should be a positive thing for the euro, but it is possible that the resolution of trade disputes between Beijing and Washington will contribute to the growth of the greenback's investment appeal, and at the moment this fact seems to outweigh.

Meanwhile, the future prospects of the euro remain in question. The coming months may be difficult for the single European currency.

Thus, the possible early elections in Spain in April could increase political uncertainty and adversely affect the course of the single European currency. Another negative factor is Brexit. Timing of the UK exit from the EU is approaching, and there is no deal.

At the end of May, elections to the European Parliament are scheduled. Given the recent political crisis in Italy, growing social tensions in France and the worsening of economic indicators in Germany, a negative reaction from markets to a possible increase in the influence of euro skeptics may follow. Also in 2019, Europe will have to go through a change in the head of the ECB, the leadership and composition of the European Commission.

Thus, on the horizon of the next few months, the movement of the EUR/USD pair in the direction of 1.1 looks quite possible. Building up long positions in the euro seems appropriate only if the political landscape improves.

The material has been provided by InstaForex Company -