The decline in the euro is not surprising after such data on industrial production in Germany, as well as the report of the European Commission, which revised the forecasts for the growth of the eurozone economy for the worse.
All of these confirm once again the fact that the European Central Bank, after such a weak start at the beginning of this year, is likely to postpone the increase in interest rates planned for this summer. These expectations are reflected in the quotes of the European currency, which reduced the pair with other world currencies, especially against the US dollar.
According to a report from the German Federal Bureau of Statistics, the industrial production declined more than expected in December even despite the increase in the production of automobiles and spare parts.
Thus, the industrial production in Germany decreased by 0.4% in December 2018 compared with the previous month, while economists had forecast growth to be 0.8%. Such a strong divergence of expectations with real data led to a sharp fall in the euro at the beginning of the European session. Compared with December 2017, industrial production in Germany decreased by 3.9%.
Additionally, the report of the European Commission added "fuel to the fire", which significantly lowered its forecasts for a number of countries, including the eurozone. Let me remind you that the last similar report was published in November 2018.
Thus, the European Commission lowered the forecast for GDP growth in the eurozone in 2019 to 1.3% from 1.9%. In 2020, the European Commission predicts eurozone GDP growth at 1.6% against the previous forecast of 1.7%.
As for the flagship economy of the eurozone, the forecast for German GDP growth in 2019 was revised from 1.8% to 1.1% amid the cooling of world trade.
In other countries, this indicator is even worse. For example, in Italy in 2019, a recession could begin at all. Judging by the data of the European Commission, the Italian economy is expected to grow by only 0.2% in 2019 against the previous value of 1.2%.
As for inflation, the European Commission expects growth only to 1.4% against 1.8% in November 2018. In 2020, inflation will rise by only 1.5%. This is far below the target value of the European Central Bank in the region of 2.0%.
The decline in indicators is directly attributable to the deteriorating situation in world trade, as well as the uncertainty associated with Brexit, which is holding back economic growth in the eurozone. It is possible that the trade conflict between the United States and China also has a negative impact on economic growth.
As for the current technical picture of the EUR/USD pair, the bears did an excellent job with the weekly task and apparently, after updating a large support level around 1.1320, a technical correction may begin. This will last up to the resistance level of 1.1370, which will seriously limit further upside potential.
The material has been provided by InstaForex Company - www.instaforex.com