29.09.202015:16 Forex Analysis & Reviews: EURUSD: What can the euro expect in the future with the gloomy outlook for the Spanish economy, a slowdown in German inflation, and a decline in consumer confidence in the Eurozone

The European currency managed to continue its strengthening against the US dollar after very positive data released today in the first half of the day for the Eurozone. We are talking about the growth of the index of sentiment in the Eurozone economy, which was pulled by the optimistic mood of Eurozone companies. Meanwhile, consumer confidence has not changed much, which may create some difficulties in the future.

Given the fact that the surge in coronavirus infections occurred in the second part of September, it is not necessary to regard the surveys of companies in the Eurozone as reliable, since the changed and more optimistic views on the future can be quickly crossed out by a new wave of coronavirus spread, which will force several European countries to introduce new restrictions and resort to stricter social distancing measures. The British authorities are thinking about introducing a ban on visiting each other in the North-East of England. Such measures must be taken because of the growing number of coronavirus infections. As Health Secretary Matt Hancock said yesterday, a sharp increase in infections in Britain in mid-September indicates the beginning of the second wave of the pandemic, which was expected only by the winter of this year. Currently, the number of daily COVID-19 infections in the country is at the level of 6,000 cases, which is the maximum for the entire time of statistics.

As for the data from the European Commission, the index of sentiment in the Eurozone economy calculated by it rose to 91.1 points in September against 87.5 points in August. The February value of the index before the start of the pandemic was at 103.4. The most significant increase in confidence was observed in Italy, while in France the index remained unchanged, which is a serious call that the mechanical rebound from the lows reached at the height of the COVID-19 pandemic has ended. The report shows that in September of this year, as in August, the consumer confidence index in France was 95 points.

The situation is similar with the Eurozone consumer confidence indicator, which also remained unchanged in September compared to August at its negative value of -13.9 points. Let me remind you that only an increase in confidence in the Eurozone will indicate that the recovery of the Eurozone economy will continue in the autumn-winter period, as the decline in confidence will seriously affect household spending.

Today's German inflation data once again confirmed market concerns that the economic recovery is gradually slowing down, and the country itself is completely under deflationary pressure. Although economists had expected a larger slowdown in inflation, the fact that the drop in the index was greater than in August this year already speaks for itself. According to the report, the German consumer price index fell by 0.2% in September this year, after falling by 0.1% in August and falling by 0.5% in July this year. The main reason for this sharp decline was the fall in prices for oil and other energy resources, as well as a reduction in VAT in July this year. Compared to September 2019, inflation also decreased by 0.2%. As for the EU-harmonized index, things are even worse. There was a decrease in the indicator by 0.4% at once.

The only good news related to the German economy today is the data on the reduction in the number of part-time employees. This suggests that many are going to work full-time, which in the future will lead to a new wave of economic growth and spur inflation. According to the Ifo Institute, the number of part-time workers in Germany fell to 3.7 million in September from 4.7 million in August. The highest share of part-time workers remains in the manufacturing sector.

As for other countries in the Eurozone, a report was published today indicating increased risks to the Spanish economy. Everything is still because of the coronavirus pandemic and its new wave. It is Spain's GDP that may shrink by 12% in 2020 at the end of the year, which makes it almost an outsider among other Eurozone countries. Problems with the tourism sector, which is again beginning to suffer from a new outbreak of coronavirus, may lead to the fact that for the whole of 2021, the economy will recover by only 5.0%, and this is one of the positive forecasts. A sharp decline in activity in the housing market and difficulties in the labor market, where the number of new vacancies is at a very low level, and unemployment is growing like a snowball, all this represents additional risks for the economy. In this regard, the authorities will have to deal with new borrowing to support the economy afloat, which by the end of 2020 may increase the national debt to 120% of GDP.

As for the technical picture of the EURUSD pair, the growth of risky assets continues. Despite all the troubles in the economy, the euro has the growth potential, although it is still quite limited. A break of 1.1690 opens new highs for buyers of risky assets in the area of 1.1735 and 1.1780. If trading moves below the level of 1.1690 again, the pressure on the trading instrument may increase significantly, which will lead to a decrease in EURUSD to the area of the month's minimum of 1.1610.