Data in the first half of the day on slowing inflation in the eurozone continue to indicate the need for intervention by the European Central Bank, which in the early autumn of this year went to lower deposit rates, announcing the launch of a bond redemption program on November 1 this year. The main problems are low inflation and weak economic growth, which will only get worse if the European regulator does not take more drastic measures.
Lowering deposit rates is already a problem for the banking sector, which is still showing healthy dynamics. However, supporters of a soft monetary policy within the ECB have active opponents of this approach. We are talking about Germany and France. From tomorrow, Christine Lagarde will take over as head of the European Central Bank. She will have to solve problems in the conditions of a split in the leadership. Current ECB President Mario Draghi has repeatedly called for support for national economies through increased public spending or lower taxes, but few agree.
As for today’s fundamental statistics, the data on GDP growth in Italy did not please economists much. According to the report, Italy’s preliminary GDP in the 3rd quarter of this year grew by only 0.1%, barely surviving a recession, and by 0.3% compared to the same period in 2018. The data completely coincided with economists’ forecasts. As for inflation in Italy, in October it remained unchanged compared to September and grew by only 0.3% year-on-year. Growth was projected at 0.1% and 0.4%, respectively.
A disappointing report on the change in German retail trade volume put pressure on the euro. According to the data, retail sales in September increased by only 0.1% compared to August, where there was a decrease in sales by 0.1%. Economists had expected growth of 0.3%. Compared to the same period in 2018, sales increased by 3.4%. The weak report once again confirms the fact that the German economy slowed in the second half of the year.
Today’s data on the growth of the eurozone economy for the 3rd quarter of this year were ignored. The report indicates that the GDP of the eurozone in the 3rd quarter of this year grew by 0.2%, as in the 2nd. On an annualized basis, growth was 1.1%. The data was slightly better than economists’ forecasts, which had expected growth of 0.1%. Trade problems, the decline in exports and investment of companies, the general slowdown in the world economy are the main reasons for such a weak indicator that pushes the eurozone into recession.
Inflation in the eurozone is far from the level set by the European Central Bank. According to a preliminary report, the consumer price index (CPI) of the eurozone in October this year rose by only 0.7%, while in September the indicator showed an increase of 0.8%. Slowing inflation is a big concern for the European Central Bank, which is aiming for a level just below 2.0%. The data completely coincided with economists’ forecasts.
The unemployment rate in the eurozone in September remained unchanged compared to August and amounted to 7.5%. Unemployment in the eurozone for September was forecast at 7.4%.
As for the technical picture of the EURUSD pair, it remained unchanged compared to the morning forecast. After buyers of risky assets failed to find the strength and get beyond the monthly maximum of 1.1180, the market began to observe profit-taking at the end of the month. Only the breakdown of the range of 1.1180 will lead to new purchases of the euro, and the target will be highs in the area of 1.1220 and 1.1260. Good macroeconomic indicators for the US can support buyers of the dollar, which will lead to a downward correction and a breakdown of the support of 1.1140, opening a direct road to the area of lows of 1.1110 and 1.1080.
Demand for the Japanese yen as a safe-haven asset is gradually returning amid uncertainty with further talks between the US and China. Although the US President expresses some optimism, few people seriously believe in his statements. Today, he can talk about good relations with Xi, and tomorrow he will introduce new trade duties.
The current decision of the Bank of Japan, which left the deposit rate at -0.1% and kept the target yield of 10-year bonds at about 0%, did not deter the purchases of the Japanese yen. The regulator has also adjusted the leading indicator for the target level of bids.
Bank of Japan Governor Kuroda said he would not hesitate to ease policy if necessary as external risks intensify. According to Kuroda, rates will remain low after the spring of 2020, as uncertainty around the trade conflict between the US and China persists.
As for the technical picture of the USDJPY pair, further growth above 109 seems unlikely. The current downward correction, which was formed after today’s decision of the Bank of Japan, may continue to update the lows around 106.50. The intermediate target will be 107.50.