The euro continues to rapidly grow against the US dollar amid growing speculation that the Federal Reserve could lower interest rates as early as the first half of this year to hinder the slowdown in economic growth that could occur due to the spread of coronavirus. Many economists believe that by the end of this year, the interest rate in the United States will return to the range of 0.75% -1.0% from the current 1.5%.
The serious problem of the spread of coronavirus, which has recently been talked about less and less, is reflected in the markets. Futures on stock indices are falling, and oil quotes are updating next lows. As I noted above, in this regard, the Fed may lower interest rates for reinsurance in order to protect the economy in the future. The report on US GDP for the fourth quarter will be released today, from which it will be clear in what condition the economy has entered the new 2020.
As for the coronavirus, ten more cases of infection have already been confirmed in Germany, and the country's authorities have announced the likelihood of an outbreak. The total number of infected reached 26 people. The number of coronavirus infected in Italy has risen to 528, and the Iranian Ministry of Health today reported 245 confirmed cases. Infection is registered in Spain, Greece and several other countries.
As for today's fundamental data, according to preliminary information, Spain's consumer price index harmonized by EU standards in February this year rose by 0.9% per annum after rising 1.1% in January, which is quite far from the target level. The data fully coincided with the forecasts of economists.
The market was also attracted by the report on the consumer sentiment index in Italy, which fell in February. According to statistics agency Istat, sentiment fell to 111.4 points in February this year from 111.8 points in January. The decrease was directly related to the deterioration of consumers' desire to incur additional costs against the background of the aggravation of the situation in the global economy.
The German labor market has lost optimism. According to Ifo, the employment indicator dropped to 98.1 points in February from 99.6 points in January. The decrease in the index occurred against the backdrop of restraint of German companies in hiring new employees. In general, the sentiment index in the eurozone economy in February rose to 103.5 points from 102.6 points in January.
Lending to companies in the eurozone remained unchanged and similar compared to December. A report from the European Central Bank today says that in January this year, bank lending grew by 3.2%, while annual growth in household lending over the same period accelerated to 3.7% from 3.6%. Let me remind you that lending is very important for the eurozone economy. The growth of the M3 monetary aggregate in January accelerated to 5.2% from 4.9% in December, while economists expected that in January the M3 aggregate grew by 5.3%.
As for the technical picture of the EURUSD pair, in the morning forecast I focused on the prerequisites for the completion of the upward trend, which is confirmed by the euro's sharp growth by over 90 points since the opening day. As a rule, large players go on such sharp movements and take profits due to the large number of speculators, which is the final stage of the upward trend. Important reports on the state of the US economy will be released, which may cause the trading instrument to return to the level of 1.0950 and a larger downward movement to a low of 1.0920. If demand for the euro continues, then the next big resistance will be visible in the area of 1.0980 and 1.1015.
GBPUSD
The British pound rushed to the lows of the month after harsh statements by the UK government on trade negotiations with the EU.
Given that the markets react very subtly to such statements, the pound quickly moved to the fall phase after an unsuccessful upward correction above the resistance of 1.2940. A preview of the British government said today that Britain is ready to suspend negotiations with the EU in June if their progress is deemed insufficient. Ultimately, the authorities want to complete work on a trade deal by September of this year, and not by January 1, 2021, as was originally agreed. Such statements did not appeal to the pound buyers, who were counting on a rebound from the support of 1.2890 in the short term and the resumption of the upward trend.
