Despite the fact that wage growth in the UK slowed at the end of 2019, the British pound strengthened its position against the US dollar after the publication of data on the number of applications for unemployment benefits. However, these statistics are unlikely to affect the Bank of England decision with interest rates, as serious problems with economic growth persist and productivity continues to stagnate.
The report of the National Bureau of Statistics of the United Kingdom indicates that the average earnings increased by 3.2% from October to December 2019 compared to the same period of the previous year, which is lower than the last three-month period of 2018, when there was an increase of 3.4%. Compared with the previous three-month period from July to August 2019, growth also slowed down to 2.9% versus 3.2%. Economists had expected average wage increases of 3.1%.
As for the unemployment rate, it remained unchanged at 3.8% in December 2019, while unemployment decreased to 3.8% over the period from October to December. Labor productivity remained unchanged. Let me remind you that last month, the Bank of England reiterated its statements made at the end of 2019 on the topic of interest rates, citing the low level of investment and the weak productivity growth that the UK expects in the coming years. The English regulator has repeatedly paid attention that it will reduce rates if growth prospects do not improve. Additional pressure on the economy and the British pound has uncertainty in relations between the UK and the EU.
From a technical point of view, growth has been outlined, which should be supported by new fundamental data on inflation in the UK, as its growth may discourage the BoE from lowering interest rates in the near future. A breakthrough of resistance of 1.3065 will open good prospects for the restoration of a trading instrument in the area of highs 1.3170 and 1.3240.
EURUSD
The European currency continued to decline against the US dollar after data indicating that the indicator of economic expectations in Germany sharply fell in February 2020. According to a report from the ZEW Research Institute, the German economic expectations index fell to 8.7 points from 26.7 points in January, while economists had expected it to drp to only 21.0 points. The current situation index continued to slide further down the negative side, reaching -15.7 points in February, against -9.5 points in January. ZEW noted that the index was significantly affected by concerns about the impact on the economy of the coronavirus epidemic, which will drastically slow down world trade. The most severe blow may affect the external sector of trade, namely the automotive industry.
As for the same indicator in the eurozone, the index of business sentiment from the ZEW Institute dropped to 10.4 points in February against 25.6 points in January this year. Economists had expected a decline to 21.3 points.
As I noted above, the euro continued to decline against the US dollar, however, there are more and more investors who consider risky assets as undervalued. According to Bank of America, among key fund managers between February 6 and 13, 33% of respondents named underestimated euros against 31% of respondents in a January survey.
As for the technical picture of the EURUSD pair, the bears are approaching a rather important level of support in the region of 1.0800, which is also a psychological mark in 2017. A breakthrough of this range will open a direct road to the area of lows 1.0740 and 1.0680. However, be careful with selling risky assets at current lows, if only for the reason that there has been no correction in the euro since the beginning of this month. The bulls returning the resistance of 1.0820 to themselves can lead to the demolition of a number of stop orders of the bears and a larger upward correction in the trading instrument to the area of the highs of 1.0860 and 1.0890.
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