Michael Kopanakis
Michael Kopanakis

EU revised GDP growth due to uncertainty

Michael Kopanakis is head of brokerage at SquaredDirect

Released in January, the ECB decided to keep the Interest Rate unchanged at 0%. This figure was the same as the forecasted figure, keeping the level the same since March 2016. The US economy saw an increase in unemployment rate from 3.9% to 4% in February. Even though this was higher than the expected level to remain at 3.9%, it is still not a bad unemployment rate for the United States. The ECB has forecasted, in the medium to long term, a steady decline in the future unemployment rate of the eurozone as well as a decline in Eurozone Gross Debt. This may strengthen the Euro as the Eurozone economy is generally forecasted to strengthen. Economic momentum has forced the European Commission to revise its growth forecast for 2019 for the 19 countries that use the Euro, because of the slowdown of the largest economy within the Eurozone (Germany), slowing growth in China and global trade weakening.  Due to all these factors which cause large uncertainty, the EU executive commission trimmed the forecast down by 0.6%. Which means that expectations for Euro Area GDP growth went down to 1.3% from last Autumn’s estimations of 1.9%.

BREXIT produced, and is expected to continue producing, high levels of volatility in the EUR/USD pair until there is a final decision on what is going to happen. The EU has already confirmed that there won’t be further negotiations for another deal. The first 2 attempts of PM May’s BREXIT deals have been voted against by the House of Commons, as stated in the previous article. The Option of leaving the Eurozone without a deal has also been voted against. At this point the only solution is to request the 2-month delay of Article 50 to buy some time for the House of Commons to agree upon a withdrawal plan. However, the EU stated that there must be valid justification before giving that extension period. A second referendum would be a good reason but, again, the House of Commons has voted against it. So now, maybe the reason they will provide to receive the extension would be to vote for a third time for the current Brexit plan, giving two more months to PM May to try to convince MP’s and win the vote for her BREXIT deal. As already mentioned in a previous article regarding taking the EUR/USD rate as a benchmark of the economy, I was first expecting a drop close to 1.11 before seeing the rate at higher levels (1.18-1.1820). From January into the first 2 trading weeks of March, the Euro has been following a steady downward channel as the EUR/USD on the Daily chart can be seen to have been constantly creating and breaking through support levels reaching the rate of 1.1175, which is now the next durable support level around with a firm resistance level at 1.1420. On more downward wave, if the channel manages to keep the price within it could lead the price to 1.11.  Looking now at the big picture (weekly chart below).

We can see that the price retraced and touched the 61.8% Fibonacci level of the last upward move (valid from December 2016 until February 2018), confirming the validity of the 61.8% Fibo Level. Price may try to break again below that level. A possible break could lead the price to start at 1.11 opening the way for 1.0950. While on the other hand, a stop of the downward move due to the key support level could push the price back to higher levels.  Therefore, there is still much space for the rate to move between 1.1570 and 1.11, depending on the view of each investor. If bulls manage to push the Euro at higher levels and break above the 1.1570, then we might see the price reaching levels that it hasn’t reached since last September (1.18).