Economic data in favor of USD, ECB to help Euro.
European started the week with mixed data. In Germany, the initial value of the unadjusted GDP annual rate in the fourth quarter was published as 0.5%, much lower than the 0.8% market’s expectations. Moreover, just in the fourth quarter, Germany’s economy decreased by -0.2%. It is the third consecutive quarter of a slowing economy and the first quarter shrink since Q4 2021. Also, it was the smallest annual growth since the last quarter of 2021.
On Tuesday, economic data from the second-largest Eurozone economy also was disappointing. French GDP in Q4 2022 increased only by 0.1%, while the market expected a 0.2% growth. At the annual rate, GDP raised by 0.5%. This slowing in economic growth is in line with decreasing French consumer spending by -1.3% in December and the sharp fall of German retail sales by -5.3% during the same period, increasing the risks of a possible recession in the region.
Eurozone gross domestic product in the fourth quarter raised only 0.1%, which was better than the expected shrink of -0.1%, but still, it is not very reassuring. In annual rate, Eurozone GDP increased by only 1.9%, compared with 2.3% growth during the same quarter last year.
On the Us front, the Dallas Fed business activity index for January recorded a -8.4 fall. Still, it was better than market expectations of a -15 fall and the previous value of -20. The good point is that the drop was the smallest since May last year.
If we look at the general data, we can see that recently published data from the US economy, including the PCE price index, personal income and Spending, and labor market data, all show that the US economy is not the weak as expected.
So, what these data have to tell us is important. In the United States, these numbers tell us that Fed may raise the rates by 25 bps, which is widely expected also, but it will have a hawkish tone in the statement, and Fed chair Powell’s press conference, which means that US Dollar has room to raise. On the other hand, European economic data are dangerous and increase the recession risks. Therefore, if ECB raises the rates by 50 bps, the fears of recession can hurt the economy even harder, although a 50 bps rate hike could be the most likely option. However, the tone in the statement and Mrs. Lagarde’s press conference can be conservative and soften the negative impact of the decisions on the Eurozone stock markets, which means it will have muted the positive impact of those decisions and policies for the Euro as well. Although, at first look, the findings of the European Central Bank should be in favor of the Euro, overall conditions continue to weigh heavily in favor of the dollar.
From the technical point of view, still, we have the 1.10 as the key pivot there, and as long as this pair is trading under that, the bears will have complete control of the market. For now, in the daily chart, EURUSD remains bullish, but in smaller time frames, like H1 and H4, we can see the signals of a U-turn.
In short, fundamental and technical signs are primarily natural, with a bearish tendency.