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EU Economic Forecast Talking Points

  • EURUSD Remains USD-Sensitive
  • EU Growth is Downgraded Amid Tightening Global Financial Conditions
  • Italy’s Budget Deficit Continues Due to a Weak Labour Market

DailyFX Q2 Euro Forecast

After recovering most of its ground over the weekend, the EURUSD was trading softer, and below the 1.12 handle, during the European morning session, remaining mostly flat even after the EU’s Spring Economic Forecast was released. The fact is that, despite improving regional data released last week, the EURUSD struggled to find upside momentum, only managing a slight improvement after mixed US jobs data lead to US dollar weakness on Friday.

As the pair’s direction continues to be USD-dominant, the focus will shift towards the USD Consumer Price Index figure which will be released on Friday May 10. Forecasts show that US CPI is expected to have increased in April, mostly due to an increase in oil prices since the beginning of the year.

Euro Weekly Price Outlook: EUR/USD Recovery Could be Short Lived – Michael Boutros, Technical Strategist

EU Spring Forecast

The bottom line is that the Eurozone continues to grow, albeit at a slower rate. The EU’s GDP is expected to grow at 1.4% in 2019 and 1.6%% in 2020, a downward revision from the winter forecast of 1.5% and 1.7% respectively. Consumer Price Inflation has picked up since the beginning of the year, as CPI in April was 1.7%, up from 1.4% in the previous month and beating forecasts of 1.6%. Despite the increase in prices most likely being influenced by the “Easter Bunny effect”, fundamentals show that the labour market is strong, and wages are increasing.

EU GDP/Inflation Forecast change

EURUSD Fails to Break Higher After EU Economic Forecast Downgrades

The focus has again shifted towards Italy, which last week emerged from a technical recession, as the country’s budget deficit is expected to increase to 2.5% of GDP, above the 2% target that was agreed with Brussels in December. After two consecutive quarters with negative growth at the end of 2018, Italy’s GDP for the first quarter of 2019 has grown by 0.2%, providing some relief for the Eurozone economy. But as Rome is reluctant to implement policies to reduce its deficit, the EU could impose an Excessive Deficit Procedure leading to Italy being fined, which could see Euroscepticism rise within the country.

Eurozone Debt Crisis: How to Trade Future Disasters – Martin Essex, MSTA, Analyst and Editor

DailyFX Economic Calendar


EURUSD Fails to Break Higher After EU Economic Forecast Downgrades

IG Client SentimentRetail trader data shows 67.4% of traders are net-long with the ratio of traders long to short at 2.07 to 1. In fact, traders have remained net-long since Apr 12 when EURUSD traded near 1.12763; price has moved 0.9% lower since then. The number of traders net-long is 0.5% lower than yesterday and 14.7% higher from last week, while the number of traders net-short is 9.2% higher than yesterday and 20.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

Recommended Reading

Eurozone Debt Crisis: How to Trade Future Disasters – Martin Essex, MSTA, Analyst and Editor


--- Written by Daniela Sabin Hathorn, Junior Analyst