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24.05.2019 01:21 AM
EURUSD: the eurozone economy will slow down in the 2nd quarter of this year due to the manufacturing sector

The euro continued to decline in the morning after the publication of the minutes of the ECB meeting held on April 9-10. In them, the leadership of the central bank expressed concern about weak inflation and a sharp slowdown in the manufacturing sector, which we will discuss below.

ECB leaders also warned that the eurozone economy may not recover as expected in the second half of 2019, and also called for an analysis of the impact of negative interest rates on banks' profitability. Until recently, problems with negative interest rates in the euro area did not arise.

As I noted above, the problems in the industrial area of the eurozone are quite serious.

According to today's data, the preliminary PMI Purchasing Managers Index for the manufacturing sector in Germany fell even more to 44.3 points in May against 44.4 points in April. Economists expected a slight increase to the level of 44.7 points.

Things are much better for the service sector. The report indicates that the preliminary PMI Purchasing Managers Index for Germany's service sector was 55.0 points in May, while it was projected at 55.5 points. Back in April, the above index reached 55.7 points.

As for the general composite index of purchasing managers in Germany, it was at the level of 52.4 points in May.

France's manufacturing sector is also on the verge of a slowdown. Thus, the preliminary PMI purchasing managers' index for the manufacturing sector in France came in at 50.6 points in May compared to 50 points in April.

As for the general indicators for the eurozone, it is clear that the economy slows down after recovering at the beginning of the year. Export problems that extend to industry indicate weak growth in the 2nd quarter of this year.

According to the research company IHS Markit, the composite index of PMI purchasing managers in the eurozone in May 2019 rose to 51.6 points from 51.5 points in April. Let me remind you that the indicator values above 50 indicate an increase in activity. In IHS Markit noted that, despite the growth of the indicator, the growth rate in the second quarter will be lower than in the first.

Thus, the preliminary PMI Purchasing Managers Index for the manufacturing sector in the eurozone fell to 47.7 points in May, while in April it was 47.9 points. Economists had expected growth to 48.1 points.

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German data did not strongly support the euro in the morning. According to the report of the Federal Bureau of Statistics of Germany, Germany's GDP in the 1st quarter of 2019 increased by 0.4% compared with the previous quarter, or 1.7% year on year. Private consumption provided good support, which increased by 1.2% in the first quarter of 2019 compared to the previous quarter. The pace of investment accelerated by 1.9%.

But the mood of companies in Germany in May deteriorated due to lower assessments of business conditions. According to the Ifo Institute, the business climate index in Germany in May dropped to 97.9 points from 99.2 points in April, while economists had expected the index to be 99.1 points in May.

As for the technical picture of the EURUSD pair, the breakthrough of support for 1.1140, which took place during the European session, provides bears with further movement to the area of lows of 1.1110 and 1.1070.

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