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Research Market strategy
by Swissquote Analysts
Daily Market Brief

EUR bounces on hopes of stronger growth

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EUR bounces on hopes of stronger growth

By Vincent Mivelaz

Market participants are looking closely for signs of a recovery in economic growth in the euro area, as 1Q 2019 GDP figures are released this morning. Although considering yesterday release of ZEW sentiment indicator for May pointing to -1.6 (prior: 4.5), there are good reasons to consider that the outlook for the second quarter remains subdued, as risks over the US and China increases uncertainty with regard to external trade.

Germany is therefore a good example to illustrate the situation. The downtrend of soft indicator ZEW at -2.1 (prior: 3.1) in negative territory suggests that economic growth in the country should be restrained for the coming six months, despite strong growth figures in 1Q 2019 q/q of 0.40% (prior: 0%), highest since June 2018 and which would imply an end to the downturn at first sight. Yet the unusual contribution from construction investment due to a moderate climate in the period overestimates the gauge. Positive inflows came from domestic demand, machinery and equipment while government expenditure recorded a decline. In the same period, the y/y gauge printed at 0.60% (prior: 0.90%), lowest since March 2013, indicating that GDP is should flatten or potentially decline in the second quarter of the year. Under current situation, we would expect a recovery phase starting from second half 2019, as the Chinese economy is will benefit from government’s stimulus measures.

Currently trading at 1.1210, EUR/USD is heading along 1.1195 as US data are approaching.

 
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