After Friday, market participants finally realized that Europe was falling into recession, as supported by important economic data. Activity on the markets dropped noticeably on Monday, which can be explained by investors 'desire to observe the economic statistics.
The German IFO business climate index published on Monday has somewhat reassured market players as they showed an increase to 99.6 points against a revised upward previous value of 98.7 points and a forecast growth of 98.7 points. Moreover, it exceeds the data index of business expectations and assessment of the current situation in the country but they could not rule out the heavy precipitate that remained after Friday's extremely weak data from the business activity index in the manufacturing sector. We recall that it showed not just a decrease in growth but a negative trend, as they turned out to be below the Rubicon level of 50 points.
In our opinion, all the attention of investors will be drawn to emerging data from Germany in particular and the eurozone as a whole. So far, it seems that there is still hope in the market that this is a local negative caused by several reasons. On the one hand, the slowdown in the growth of the Chinese economy and on the other, the trade war between Washington and Beijing. However, as previously indicated, it seems to us that the main reason is the accumulated problems after the severe crisis of 2008-09, which were not corrected but simply, as they say, flooded with cheap liquidity from the ECB as part of incentive programs.
In contrast to the FedThe ECB, they did not manage to reach the threshold of a new global crisis with at least the degree of normalization of monetary policy, as was done by the Fed. And now, the ECB simply does not have monetary tools to deal with this process given the high risk of the European economy slipping into a new recession.
Assessing such prospects, we believe that the single currency will continue to remain under pressure against all major currencies. In addition, the situation around Brexit can strike the European economy despite Brussels's assurances of preparation for it and at the same time, it will also have a negative impact on its course.
Forecast of the day:
The EUR/USD pair is still consolidating above the level of 1.1285 while waiting for the publication of new data on the German and European economy, as well as, the situation around Brexit. We still believe that it has the potential to fall to 1.1215 after a decline below 1.1285.
The GBP/USD pair remains in the 1.3060-1.3320 range on a wave of complex history around Brexit. If the parliament does not approve of T. May's plan, the pair may fall to 1.3060 after crossing the level of 1.3160.
