Corrective positivity. Fundamental analysis for 16.12.2014
16.12.2014
Relatively good European statistics allowed the Eurodollar to go into a correction. The French PMI remained below the 50 level, but the service index rose unexpectedly, which has given positivity - the suddenly looming recession could be avoided. Statistics for Germany and the euro zone as a whole came in contradictory, but a significant increase in economic sentiment still returned some confidence to the market.
One reason for this improvement to the business activity was the fall in energy prices, allowing both businesses and consumers to expand expenses due to the released funds. However, today's statistics is not enough for any significant improvement in the European economy, or even to reduce unemployment, which is still in double-digit values.
Moreover, the statistics are in the black exclusively due to peripheral countries, which have currently significantly better dynamics than in Germany. How long this trend will continue is not clear for now, because if the German statistics do not begin to accelerate in the coming months, the continued recovery on the outskirts of the euro zone will also be under a big question.
In addition, events of the past years are repeating, where the weak signs of recovery led to a slowdown in reforms. For example, in Spain it was announced that the unemployed will receive additional benefits as the risk of their social exclusion is increased. It is worth noting that the country will hold parliamentary elections next year, and the authorities are struggling to prevent the victory of the opposition led by the euro sceptics.
The situation is almost at a stalemate. If spending on social benefits is not increased, the army of disaffected unemployed will vote for populist promises. The growth of budget expenditure is jeopardizing plans to reduce the deficit, in the case of an aggravation of the situation in the economy. Meanwhile the situation remains relatively stable due to the market's expectations regarding the expansion of the program of purchases by the ECB. However, if the regulator does not go to conflict with Berlin and will not start in the next year the purchase of government bonds, investors may well inflate rates, and we have already seen how sharply it can be.
I still hold transactions on sale as the positivity from the euro zone is not enough to reverse the current trend. Moreover, on Wednesday the inflation data in the euro zone is expected to come out at 0.3%. If the statistics really come to this mark, the pressure on the ECB will continue, and the prospects for action on their part are negative for the Eurodollar.
RoboForex Analytical Department
One reason for this improvement to the business activity was the fall in energy prices, allowing both businesses and consumers to expand expenses due to the released funds. However, today's statistics is not enough for any significant improvement in the European economy, or even to reduce unemployment, which is still in double-digit values.
Moreover, the statistics are in the black exclusively due to peripheral countries, which have currently significantly better dynamics than in Germany. How long this trend will continue is not clear for now, because if the German statistics do not begin to accelerate in the coming months, the continued recovery on the outskirts of the euro zone will also be under a big question.
In addition, events of the past years are repeating, where the weak signs of recovery led to a slowdown in reforms. For example, in Spain it was announced that the unemployed will receive additional benefits as the risk of their social exclusion is increased. It is worth noting that the country will hold parliamentary elections next year, and the authorities are struggling to prevent the victory of the opposition led by the euro sceptics.
The situation is almost at a stalemate. If spending on social benefits is not increased, the army of disaffected unemployed will vote for populist promises. The growth of budget expenditure is jeopardizing plans to reduce the deficit, in the case of an aggravation of the situation in the economy. Meanwhile the situation remains relatively stable due to the market's expectations regarding the expansion of the program of purchases by the ECB. However, if the regulator does not go to conflict with Berlin and will not start in the next year the purchase of government bonds, investors may well inflate rates, and we have already seen how sharply it can be.
I still hold transactions on sale as the positivity from the euro zone is not enough to reverse the current trend. Moreover, on Wednesday the inflation data in the euro zone is expected to come out at 0.3%. If the statistics really come to this mark, the pressure on the ECB will continue, and the prospects for action on their part are negative for the Eurodollar.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.