04.10.201900:45 Forex Analysis & Reviews: GBPUSD and EURUSD: Why is the UK economy on the verge of a recession, and the pound is showing growth? Weak activity in the eurozone services sector is expected

The euro and the pound ignored weak evidence that the slowdown in the manufacturing sector has spread to other sectors of the economy, including the service sector. The reports released today again pointed to new signs of a slowdown in the economy of the eurozone and the UK, which increased expectations of further incentive measures from central banks, especially from the European regulator, which may resort to drastic measures by the end of the year.

According to the data, the PMI supply managers index for the Italian services sector in September this year rose to 51.4 points, while in August it was at 50.6 points. Italy is the only country where the service sector has shown at least some growth. Economists predicted that the index would be 50.2 points.

A similar index of PMI procurement managers for the French services sector in September fell immediately to 51.1 points against 53.4 points in August, while it was forecasted at 51.6 points.

The weakness of Germany's manufacturing sector also spread to the service sector, where the PMI for purchasing managers dropped to 51.4 points in September against 54.8 points in August. Economists had expected a smaller decline to 52.5 points.

As for the eurozone as a whole, according to IHS Markit, the composite index of procurement managers PMI, which includes data on production and services, fell to 50.1 points in September, barely staying above the level of 50 points, which acts as the boundary. The index is at 51.9 points in August. Let me remind you that an index value above 50 indicates an increase in activity compared to the previous month.

As a result of such data, it can be expected that in the third quarter of this year, the eurozone economy will show a 0.1% growth at best, but most likely a decrease in GDP growth will be noted.

Retail sales slightly recovered in August, showing a slight increase compared with July, where there was a sharp drop in sales. Such news, of course, is positive, but does not play a big role against the background of the general weakness of the economy. According to data, retail sales in the eurozone rose 0.3% in August after falling 0.5% in July this year. Compared to the same period in 2018, sales grew by 2.1%.

But inflation remains a serious problem in the eurozone. According to the data, the eurozone producer price index (PPI) fell by 0.5% in August compared with July and fell immediately by 0.8% compared to August 2018, which is very bad news for the European Central Bank, which seeks to return inflationary pressure to the desired level. Economists predicted that the eurozone producer price index to fall 0.2 percent and 0.4 percent in August, respectively.

As for the base index, it, without taking into account energy sources, remained unchanged in August compared with July and grew by 0.5% per annum.

From a technical point of view, no changes were made in the EURUSD pair. Further growth will depend on the breakdown of resistance at 1.2330, which will provide the market with new buyers, as well as lead to the demolition of a number of sellers stop orders. The targets will be highs in the areas of 1.2370 and 1.2440.

GBPUSD

Demand for the British pound is gradually returning, and given the fact that traders completely ignored the report on the reduction in the service sector, focusing on today's speech by Boris Johnson. All chances to continue strengthening the pound remain.

According to a survey of UK supply managers, activity fell sharply in September, which is the first step towards a technical recession. The report said that the PMI for the UK services sector fell to 49.5 points in September. Let me remind you that this week reports were also released that spoke about the reduction of the industrial and construction sectors. A sharp drop in indices for all three sectors directly indicates that the UK economy, if not yet, is close to recession.

However, the entire calculation of traders now comes down to the Brexit problem and its solution, which was proposed yesterday by the British government, but has not yet received approval in the EU. Let me remind you that the UK plans to abandon the introduction of border and customs control on the border with Ireland. This is a very important step towards resolving disagreements, since it is precisely because of problems with the physical border that it has been impossible to reach an agreement for so many years. With such a message yesterday, British Prime Minister Boris Johnson addressed the EC President Jean-Claude Juncker.