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Important economic data in Europe published today – Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
In a technical rebound, EURUSD and EURGBP fully grasp the ECB statements.

On one hand, the PMI of services for January, which has risen slightly compared to expectations, 45.5 vs 45 expected, data that confirms that the European services sector remains at least, although still below the growth threshold of this index located at 50.

And on the other hand, the inflation data. This is more relevant it is the main objective within the European Central Bank mandate. The ECB's monetary policy aims to achieve an inflation level close to 2%, but not higher. For this, it deploys all its instruments to stimulate the economy such as interest rates, in some cases negative, and its program of purchase of assets.

The first reading of the data published today is positive due to the rise experienced in the IPC data, which for January has risen to 0.9% year on year from negative values ​​last month at -0.3%.

But the data has a drawback, which is that the increase is motivated by the end of the VAT cut that Germany had imposed last year as an additional stimulus measure to the economy and the introduction of a new tax on CO2 emissions. Which has an immediate raise effect on prices.

Therefore, it is a rise in prices motivated by tax increases and not by a rebound in domestic demand. Consequently, market analysts' general opinion is that the ECB is going to downplay this rise in inflation data and will not have it into consideration when setting the monetary policy. It will be necessary for these price increases to be sustained over time to affect the ECB decisions. The figures released in the following months will be essential and taken into account by market participants.

A rebound in inflation, such as today's, would have been interpreted by the market as positive for the Euro under normal circumstances as it would anticipate an upward normalization of interest rates. Still, this time the effect has been nil.

European Currencies

EUR /USD remains under pressure trading at the lows of the day around 1.2020. The pair has confirmed the downward break of the primary support located at 1.2065 daily close below this level. From a technical analysis perspective, it is in a downtrend with the first target around 1.1950.

The same happens in the price against the Pound.

EUR/GBP broke the support at 0.8866 and from a technical point of view has a clear path to the zone between 0.8700 and 0.8770. In this case, the RSI indicator is in the area close to the oversold on a daily chart, although it does not yet show any signs of exhaustion or divergences.

Sources: Bloomberg, Investing.com.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.