The fact that the GDP data came out better than expected did not save the single European currency from further decline. At best, the acceleration of the economic downturn from -4.3% to -5.1% with a forecast of as much as -6.0%, only softened the scale of the decline in the single European currency. Whatever one may say, we are still talking about the deepening of the economic crisis. Especially in comparison with the United States, where not only is the economic downturn smaller, but it is also slowing down. So, the continued decline of the single European currency is absolutely justified.
GDP growth rates (Europe):
Nevertheless, a real rise in the single European currency today is visible, covering the decline of the previous few days. Everything will depend on the data on inflation in the euro area. It is worth recalling that over the past five months, deflation has been recorded in Europe. Moreover, over the past four months, the rate of decline in consumer prices has been at -0.3%. Today's data should show not just the end of deflation, but a rather sharp increase in consumer prices. According to the most conservative estimates, the inflation rate in January was 0.3%. Some forecasts and in all show that inflation will be 0.5%. Even if we proceed only from the lowest estimate, this is still a fairly significant jump in the level of consumer prices. And of course, the most important thing is that deflation must end.
This fact alone will lead to a rapid growth of the single European currency. Well, the higher the direct level of inflation, the stronger the growth of the single European currency will be. However, against this background, a rather important factor will remain without attention. Deflation implies a compression of demand, as consumers begin to change their behavior, postponing purchases until later, when prices fall even more. If deflation lasts long enough, and five months is a long time, then the compression of demand leads to a decrease in supply. It makes no sense for manufacturers to increase output if the price of their products goes down and demand decreases. So, when prices fall to a certain level, consumers en masse decide that now you can buy - and the demand increases sharply. But the supply does not keep up with the growing demand, since it is simply impossible to quickly increase the volume of output of goods and services. There is a certain time lag. This leads to a sharp jump in prices, which devalues consumers' savings, radically reducing their purchasing power. That is, deflation can be replaced by a sharp unwinding of the inflationary spiral, which will be almost impossible to keep. And oddly enough, such a sharp increase in inflation, which is expected in Europe, hints that this is exactly what is happening.
It is too early to say this with all confidence, we need to look at what inflation will be in the future. And how it will behave. But if everything goes exactly according to this scenario, the European Central Bank will be forced to dramatically change its own monetary policy. Moreover, the reversal will be so rapid and unexpected that many investors will inevitably suffer huge losses. Although it is customary to say that inflation is good, since it guarantees a return on investment, its excessive growth does not bring anything good. And let them not think about it today, it is worth keeping it in mind to be prepared for what may happen quite soon.
Inflation (Europe):
The EUR/USD currency pair broke the 1.2050 level for the first time in a long time, thus resuming the January correction course in the direction of the psychological level of 1.2000.
The market dynamics is slightly above average, which has a positive effect on the volume of speculative positions in the market.
If we proceed from the current location of the quote, we can see a pullback of the price to the previously passed mark of 1.2050, where the level of 1.2000 in this case plays the role of support.
Considering the trading chart in general terms, the daily period, it is worth highlighting the correction move from the peak of the medium-term upward trend of 1.2349, in the structure of which the current quote moves.
It is expected that the market will be active today due to the flow of statistical data, where initially there may be an upward interest, but after that, accumulation within the support level of 1.2000 is not excluded.
Buy positions are considered higher than 1.2050, in the direction of 1.2130. Sell positions are considered to prolong the correction move, but to confirm the signal, the quote needs to stay below 1.1990 in the four-hour period.
From the point of view of a comprehensive indicator analysis, it can be seen that the indicators of technical instruments unanimously signal a sale by keeping the price below 1.2050.
