The euro and the pound's correctional movement, which began last Thursday, continued throughout Friday. Oddly enough, such movement during the previous week was quite logical. It is clear that Europe's macroeconomic data were not pleasing.
Despite the fact that statistics were not expected to be released in the Eurozone, several data were still published in France and Spain, which are the second and fourth economies of the EU. In particular, Spain released its preliminary inflation data, which declined to 0.0% instead of expected growth from 0.5% to 0.6%. The situation is similar in France, where inflation was supposed to rise from 0.5% to 0.6%, but slowed down to 0.4%.
It should be noted that the whole Eurozone's inflation data will be published on Tuesday, which is expected to rise. However, there are fears that inflation growth in Europe is unstable due to the data released in France and Spain. This means that there are still risks of returning to deflation. In addition, the final data on French GDP for the fourth quarter confirmed the acceleration of the economic downturn from -3.7% to -4.9%. Overall, the situation is not that far from ideal. It's only getting worse.
GDP growth rates (France):
There was hardly a difference in the nature of the UK's statistics, where the rate of decline in car production surged from -2.3% to -27.3%. This corresponds to the general decline in industrial production in the United Kingdom.
Car Manufacturing (UK):
Today will be the publication of the final data on the PMI in the manufacturing sector, which is expected to coincide with preliminary estimates. So, they will not greatly affect investors' mood. Here, the index in the Euro area is expected to rise from 54.8 to 57.7. And judging by the largest countries there, then Germany's index is forecasted to grow from 57.1 to 60.6, France from 51.6 to 55.0, Italy from 55.1 to 56.2, and Spain from 49.3 to 51.5. However, the market has already incorporated this growth of indices into the Euro's value. Thus, the preliminary inflation data in Germany and Italy are much more interesting.
Germany's inflation data may remain at the current level of 1.0%, while Italy has growth potential from 0.4% to 0.5%. However, it should be recalled that similar data for France and Spain were worse than forecasted, so we can assume that this scenario may repeat. It will be enough that inflation will slow down only in Germany, which is the largest economy in the euro area. In this case, we believe that Europe's inflation data tomorrow will be worse than forecasted. And so, there is no need to be optimistic about the Euro currency.
Inflation (Germany):
Similarly in the EU, the United Kingdom is also expected to publish its final PMI data in the manufacturing sector, which is expected to rise from 54.1 to 54.9, coinciding with the preliminary estimate. But still, investors will look at other data. In particular, the lending market data, which somehow does not cause optimism. We expect 97.5 thousand mortgage loans to be approved, against the 103.0 thousand during the previous month. The volume of mortgage lending is also forecasted to decline from 5.6 billion pounds to 5.1 billion pounds. The total volume of consumer lending should be reduced by another 1.7 billion pounds.
It should be noted that we are talking about one of the indicators of the state of the real estate market, which is one of the main criteria for the investment attractiveness of the UK. In general, we have disappointing forecasts, which confirms that the pound's entire long-term growth was purely speculative.
Consumer lending (UK):
However, given the fact that the US business activity index in the manufacturing sector is expected to decline from 59.2 to 58.5, we can say that the pound and euro's decline will be limited. The market already considered this during the publication of the preliminary estimate, which means their reaction will be moderate.
Manufacturing PMI (United States):
Euro's decline has been quite massive during the past few days, so do not expect any serious weakening. Moreover, only a number of countries will publish its data, as the decline in inflation in France and Spain has already been taken into account. In this case, the euro is likely to decline to the level of 1.2050.
In turn, the pound's situation is slightly different, since it is still greatly overbought, and the UK's published data are quite significant. In this regard, the British currency is expected to decline to the level of 1.3900.
The material has been provided by InstaForex Company - www.instaforex.com