Released in December, the Eurozone GDP Year on Year figure came out lower than the previous result. The actual figure was announced at 1.6% growth, following the 2.2% growth figure of the previous period.
Following a decade of recessions and financial crises, the European Central Bank announced on December 13th that one of the most extensive quantitative easing programs would come to an end; supported unanimously by the ECB.
Mario Draghi, President of the ECB, stated that “the only driver of this recovery” was occasional quantitative easing. In total, the program pumped €2.6trn ($2.94trn) into the Eurozone economy. For the past four years, the bond-buying scheme kept interest rates, and therefore borrowing costs, at historic lows to encourage investment from European governments.
The end of this program may result in an appreciation of the euro against other currencies, due to the cut in the constantly increasing supply of euros from the ECB. This will be true as long as the ECB can continue to stimulate demand for its currency, therefore we may see a potential interest rate-hike but not earlier than summer of 2019, as it is confirmed that we shouldn’t be expecting any rate-hike before summer
Inflation for 2019 is forecasted to decline from 2% to 1.8%. But the Core Inflation rate which is crucial for the economy, as it is the one that refers to consumer’s basket excluding energy and food sectors, is still moving at exact rates or a little higher (0.1%) than we have been seeing since January 2017. So, for the last 2 years, the European Central Bank didn’t manage to make any progress.
The markets are also waiting for the U.K. parliament and final vote regarding Brexit that will happen on the 15th of January 2019. It is forecasted that the deal is going to be rejected. The continuous uncertainty about Brexit seems to be keeping the market volatile. From November into the first week of January the Euro has been moving sideways, as the EUR/USD on the Daily chart can be seen to have “zig-zagged” its’ way across displaying a substantially durable support level around 1.1215, with a firm resistance level at 1.1570.
The previous upper boundary of 1.15 has finally collapsed as the pair lifted above this level after testing the valid resistance level several times since last October, that the pair started trading sideways. On the other hand, sellers also managed to also gain some space and break below the 1.13 in mid-November. Both buyers and sellers didn’t manage to keep momentum on both cases and the price within the following couple of days retraced back to the previous range of 1.13-1.15 and is currently trading at 1.145. In reference to my previous article back in November, I still expect big movement as the price is consolidating for the last few months within that range.
So, I still believe that 1.1825 and 1.11 are the targets for investors. We may see the euro trading at lower levels in the first quarter of 2019 trying to reach the 1.11 level before we see it rising again during the expected ECB rate-hike in late 2019.
Author: Michael Kopanakis, Head of Brokerage at SquaredDirect
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