According to a ZEW, the German economic index of investor confidence in December increased from -24.1p to -17.5p, which is a good sign after a long period of decline in the negative area. For the eurozone, the same indicator also slightly improved with -22p. to -21p, however, the overall assessment of the economic situation worsened for both the German economy and the eurozone.
It is also necessary to take into account additional factors, such as higher energy prices and political risks in France and Italy. In general, the growth rate of the eurozone has clearly slowed down, partly due to the natural recoil from a very strong export growth in 2017 at the level of 5.4%. Partially, the decline in exports was due to the tightening of external conditions, such as the trade war between the United States and China. Also, it is due to the general slowdown in the growth of the global economy. The decline in exports led to a slowdown in the manufacturing sector and then in the services sector, which affected the business confidence.
It is also necessary to take into consideration the additional factors, such as higher energy prices and political risks in France and Italy.
Nevertheless, it is obviously premature to assume a quick recession, primarily because of the persistently high level of average wages in the eurozone, which will help maintain high domestic demand. The growth of private consumption will also be promoted by labor shortages, which will lead to improvements in the labor market and a decrease in unemployment.
The challenge facing the ECB looks complicated but not insoluble. The regulator needs to gently complete the asset repurchase program, this action is expected by the market and will not cause strong movements. At the same time, it is necessary to prevent a strong growth of the euro, especially against the background of the expected decline in the US dollar, and to maintain support for the economy next year, where a program to reinvest some of the programs in the framework of LTRO2 may be announced.
On Wednesday, EUR/USD pair will remain under slight pressure and will trade in a range with a tendency to move to its lower boundary. The immediate goal is 1.1265 with a fall in support which will open the way to 1.1215 but such a strong decline is unlikely until Thursday.
Great Britain
The unemployment rate in the UK is stable and amounted to 4.1% in August-October, which coincided with the value a month earlier. Taking into account the premiums, the average wage rose to 3.3% against 3.1% a month earlier that turned out to be much better than forecasts of experts who expected a decline.
Strong data on wage growth combined with a slowdown in inflation indicate a growth in real incomes of the population, which is a strong bullish factor for the pound. However, the markets did not respond to the release of positive data, since all their attention focused on the political situation associated with Brexit.
European Commission President Jean-Claude Juncker said on Tuesday that the terms of the agreement on leaving the UK from the EU are not subject to change. Thus, disavowing Theresa May's statement that she would use the deferment of voting in Parliament for new negotiations with Brussels.
Thus, chances of Theresa May in parliament's approval of the terms of the deal have been significantly reduced and she herself faces an obvious threat of resignation. The situation in the UK is a dead end since a change in the agreement is impossible and its adoption can cause a new political crisis associated with the status of Ireland and Scotland in the British alliance.
The dynamics of GBP/USD pair until the end of the week will be determined by technical factors and the development of the political situation since no important macroeconomic data are expected. The pound did not find grounds for corrective growth to the level of previous support of 1.2660, which means that the downward impulse is strong and should not be expected to stop falling. The immediate support will be at 1.2440 and then to 1.2228, and the pound can get attain it before the end of the week.
The material has been provided by InstaForex Company - www.instaforex.com