Ahead of today’s Fed and ECB decisions, the EUR/USD currency pair is exposed to selling operations with losses towards the 1.0801 support level before settling around the 1.0865 level at the time of writing the analysis. This performance did not stop at yesterday's session. The currency pair is being sold for profit after its highest gain in nine months recently.
The European economy shed the meager gains at the end of last year as accelerated inflation fueled by rising energy prices and Russia's invasion of Ukraine deterred people from spending in stores and restaurants. Accordingly, the European Union statistics agency Eurostat reported that economic output increased by 0.1% in the last three months of 2022 from the previous quarter, thus avoiding an outright recession as the warmer than usual winter weather calmed fears of energy rationing. For the whole of 2022, the European economy grew by 3.5%, surpassing the 2.1% growth in the US and China's 3% last year.
It seems that the countries participating in the euro currency - 19 in 2022, now 20 after Croatia joins the euro zone in the new year - have avoided the worst-case scenario: the forced shutdown of the industry from running out of natural gas after Russia stopped maximizing supplies. And the warmer weather and efforts to find new supplies coming by ship rather than by pipeline from Russia have eased that concern for now.
However, natural gas prices are still three times higher than they were before Russia began massing troops on the Ukrainian border, having risen to a record 18 times that level in August. These prices multiply utility bills and lead companies to pass costs on to customers by imposing more fees on goods and foodstuffs. Commenting on the numbers, Rory Fennessy, the European economist at Oxford Economics, said: "Growth was still very weak." He added that "the positive reading could hide the basic weakness in domestic demand" and that "private consumption is likely to have shrunk."
For his part, Martin Morrison, Chief Economist for Europe at DWS Asset Management, said: "The main reason" that pushed Europe into the positive zone was the strong growth of 3.5% in Ireland - a number that is usually "distorted" due to the large number of foreign companies located there for tax reasons. The main economies Germany and Italy contracted by 0.2% and 0.1% respectively.
Growth also faced headwinds from lower activity in China, the main trading partner, due to severe COVID-19 restrictions that have since been lifted. Potential economic recovery There is a major question for Europe and the global economy this year, given China's former role as an engine of global growth.
While disappointing, the growth numbers in Europe at least make it more likely that it will be overcome without a technical recession even if economic growth is negative in the first three months of this year. Two consecutive quarters of declining output is one definition of a recession, although economists at the Eurozone Business Cycle Dating Committee use a broader range of data such as unemployment and the depth of the contraction.
The news comes as the International Monetary Fund raised its forecast for global economic growth this year to 2.9% from 2.7% – not much, but an improvement partly dependent on China's hopes. A stronger global economy is important to Europe given its extensive trade links. Fears of slowing economic growth have so far not prevented the European Central Bank from a series of interest rate increases, which will sharply raise the cost of borrowing for companies and consumers in an attempt to calm inflation.
The European Central Bank's Board of Governors is expected to add another interest rate increase of half a percentage point at its meeting on Thursday. Interest rate hikes by other central banks around the world, including the US Federal Reserve and the Bank of England, have also increased pressure on the global economy. Accordingly, European Central Bank officials say that raising interest rates now and putting an end to inflation before it hits the economy avoids the need for further tightening later.
Expectations of the euro against the dollar today:
- According to the performance on today's chart below, if the sales of the euro currency pair against the US dollar EUR/USD continue, the bears may collide with an important support level which is 1.0760.
- This strongly supports the bears to move down and change the general view of the currency pair to bearish.
- The movement of the euro dollar towards the resistance 1.0925 will be important for the bulls again to move towards the psychological resistance 1.1000 and I still prefer to sell the euro/dollar from every rising level.
Today the euro pair will react against the dollar with the announcement of the inflation figures in the euro zone, then the reading of the initial US jobs from ADP ended with the monetary policy decisions from the US Federal Reserve Bank and the statements of Governor Jerome Powell.
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