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One gets the feeling that the market is returning to normal and behaving strictly in accordance with published macroeconomic data. At least, the single European currency completely worked out US data yesterday. Sooner or later this was bound to happen. At least for the simple reason that the coronavirus epidemic cannot last forever. Yes, and people eventually get tired of the monotony and they need at least some kind of change of scenery. So market participants are gradually turning their attention to macroeconomic statistics.
The single European currency began to grow rapidly immediately after the publication of the second estimate of United States GDP for the second quarter. Moreover, the results were significantly worse than the first assessment showed. The United States economy fell by 5.0% for the quarter. The first estimate showed a decrease of only 4.8%. But restrictive measures because of the coronavirus began to be introduced only at the very end of March. That is, at the end of the quarter. And that was enough for such a serious recession. Indeed, everything falls into place, if we agree with the assertion that economic problems matured much earlier and even without coronavirus a recession in the economy was inevitable. But politicians stubbornly refuse to acknowledge this and blame everything on the worldwide coronavirus pandemic. After all, they do not want to be responsible for what is happening. Especially for what happens to the labor market. Just on this issue there is a glimmer of hope, since for the first time in a long time the number of repeated applications for unemployment benefits has decreased. They turned out to be only 21,052,000. This is noticeably less than 24,912,000 recorded last week. The number of these same repeated applications grew for ten consecutive weeks. Nevertheless, even despite a slight decrease, the total number of applications continues to be prohibitive, after all, the normal range is from 1,500,000 to 2,000,000 repeated requests per week. The number of initial applications also slightly decreased and there were 2.123,000. But this is still almost ten times more than under normal conditions. So, even despite some apparent improvement in the situation on the labor market, the picture is still awesome. In addition, the volume of orders for durable goods decreased by another 17.2%. In the meantime, orders are being cut, and there can be no question of restoring retail sales and industrial production. And given the scale of the decline, it is not surprising that more and more people are inclined to compare the current crisis with the Great Depression.
GDP growth rate (United States):
Today, the market will only be interested in preliminary data on inflation in Europe. Moreover, no other macroeconomic data is published. Inflation is expected to decline from 0.3% to 0.2%. There are assumptions that the slowdown will occur by 0.1%. However, if you take into account yesterday's inflation data in a number of European countries, then there is a suspicion that the data will be noticeably worse than forecasts. Indeed, deflation in Spain only increased from -0.7% to -1.0%. In the same way, the pace of decline in producer prices in Italy accelerated from -3.7% to -5.1%. And all this turned out to be worse than forecasts. Forecasts were justified only in Germany, where inflation slowdown is still recorded from 0.9% to 0.6%. Prices fell by 0.1% in monthly terms. So, in fact, there is a steady slide into deflation in Europe. A meeting of the Board of the European Central Bank will take place next week, and if inflation data turn out to be worse than forecasts, and the risks of deflation become unacceptable, then you should expect new steps from the regulator. Perhaps a substantial expansion of the quantitative easing program will follow, or even worse.
Inflation (Europe):
From the point of view of technical analysis, we see an intense upward movement, on the basis of which the psychological level of 1.1000 was passed, and a half-month flat of 1.0775/1.1000 was broken. Considering the past trading day in detail, you can see high activity, where market participants reached a subsequent level of 1.1100, eventually slowing down.
In terms of a general review of the trading chart, the daily period, you can see the first change in cycles in a long time, but even with such an active fluctuation, the global downward trend remains unchanged.
We can assume a temporary slowdown in the range of 1.1080/1.1120, where in case of price taking lower than 1.1080, a correction towards 1.1050-1.1030 may occur.
We specify all of the above into trading signals:
- Buy positions should be considered above 1.1120 if the previously set momentum is maintained. The prospect of development is in the area of the subsequent level of 1.1180.
- We consider selling positions in terms of a correction below 1.1080, with the prospect of a move to 1.1050-1.1030.
From the point of view of a comprehensive indicator analysis, we see that the indicators of technical instruments hold a buy signal against the background of an increasing momentum.
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