31.03.202014:58 Forex Analysis & Reviews: EURUSD: Weak eurozone inflation and German labor market resilience have started a series of reports on the state of the global economy during the COVID-19 pandemic

Weak fundamental statistics for the economy of France, where there is a slowdown of inflation and consumer spending, together with slower growth of consumer prices in the eurozone, had a negative impact on the European currency during the European session on Tuesday, March 31. Only a report indicating a more or less stable situation in the German labor market in March of this year kept risk assets from falling more significantly. However, I would not count on this indicator very much, since it has recently become known about the suspension of work of a number of German factories, namely the automobile industry, and the threat of dismissal of employees, which will seriously affect the indicator and the economy as a whole. I think that the reasons why this is happening do not need to be named.

Exchange Rates 31.03.2020 analysis

As for consumer spending in France in February this year, it declined by 0.1% compared to March and fell by 0.6% compared to the same period in 2019. Although spending growth was forecast to be 0.7% and 0.5%, respectively. Such a sharp drop in the indicator can only signal that in March we can expect a larger reduction in consumer spending due to the strengthening of the coronavirus pandemic. As for inflation, according to the report, the preliminary consumer price index (CPI) in France in March 2020 remained unchanged compared to February and increased by only 0.6% year-on-year. The index was forecast at 0.3% and 0.9%, respectively. The preliminary harmonized consumer price index for EU standards rose by 0.7% per annum in March after rising by 1.6% in February.

Exchange Rates 31.03.2020 analysis

A sharp decline in inflationary pressure in France once again confirms the probability of deflation in the 2nd quarter of this year and a drop in GDP growth.

In the euro area as a whole, inflation also weakened in March this year due to a sharp drop in energy prices caused by the coronavirus pandemic and a reduction in global demand.

According to the EU Statistical Agency, the eurozone consumer price index rose by only 0.7% in March compared to the same period of the previous year, after rising by 1.2% in February. Energy prices fell immediately by 3.1% compared to February and 4.3% compared to the same period of the previous year. As for core inflation, which does not take this indicator into account, the index rose by 1% after increasing by 1.2% in February. Based even on this report, it is already possible to say that the European Central Bank is gradually moving away from its target level, set slightly below 2%. Expanding the volume of the bond purchase program with the provision of cheap long-term credit is a strong stimulus to the economy, but how these measures will respond to inflation remains a mystery. Most likely, the slowdown in further growth of the consumer price index in the coming months will continue.

Exchange Rates 31.03.2020 analysis

As mentioned above, there is no hope that the number of unemployed in Germany will remain at the same level in the future. Despite the fact that jobless growth in March was much lower than expected, this does not mean that Germany will be able to avoid the impact of the epidemic on the labor market in the future.

According to a report from the Federal Employment Bureau, the number of applications for unemployment benefits in March 2020 rose by only 1,000 after a decline of 8,000 in February, while economists expected the number of applications to rise by 35,000 in March. The unemployment rate was 5.0%. The number of registered vacancies in March was 691,000.

As for the technical picture of the EURUSD pair, the bears completely coped with the task and reached the level of 1.0950, which is now being actively fought by buyers of risky assets. In case of low demand for the euro even in this range, I recommend postponing long positions until the test of larger lows around 1.0870 and 1.0750.

*Prezentowana analiza rynku ma charakter informacyjny i nie jest przewodnikiem po transakcji.

Jakub Novak,
Ekspert analityczny InstaForex
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