The French economy contracted in the 4th quarter of this year, which indicates problems with the growth of the eurozone’s GDP, since we can no longer count on Germany alone, which is also not in the best shape, tacking on the edge of recession. According to a report by the statistics agency Insee, the GDP of France, which is the second-largest economy in the eurozone, decreased by 0.1% in the 4th quarter of 2019 compared to the 3rd quarter after growing by 0.3%. The drop was directly related to strikes at the end of the year (presumably -0.1% of GDP), which were held by protesters against the pension reform, as well as a reduction in the inventory of companies and interruptions in exports. However, strikes are likely to have a limited and short-term impact on the economy.
Meanwhile, consumer spending in France in December 2019 decreased by 0.3% compared to November and increased by 2.0% compared to December 2018. A drop of 0.4% m/m was predicted. This reduction in spending is unlikely to support the final report on the French GDP for 2019.
Inflation also continued to decline. According to the data, the preliminary consumer price index (CPI) in France in January this year decreased by 0.4% compared to December and increased by 1.5% year-on-year. The index was expected to fall by 0.5% and grow by 1.5%, respectively. As for the EU-harmonized consumer price index, it increased by 1.6% compared to January 2019. The situation with inflation does not cause serious problems, however, the indicator falls short of the 2.0% level set by the European Central Bank.
A report on Italian GDP growth was also published today. According to preliminary data, it decreased in the 4th quarter by 0.3% compared to the 3rd quarter of 2019, while it was expected to remain unchanged.
All these indicators made a negative contribution to the overall gross domestic product of the eurozone in the 4th quarter, which grew by only 0.1% compared to the previous quarter. Economists had expected quarterly growth of 0.2%. The EU statistics agency Eurostat also indicated that GDP grew by only 1% compared to the same period of the previous year.
Annual inflation in the eurozone rose only by 1.4% in January after rising by 1.3%, which is also far from the target, and with interest rates at zero and negative levels, it may need more drastic intervention from the Central Bank, which continues to sit on the sidelines, watching the situation develop after a series of changes made last fall. The eurozone consumer price index for January was predicted at 1.4%. Meanwhile, the core consumer price index, which does not take into account volatile categories, rose only by 1.1%.
As for the technical picture of the EURUSD pair, the gradual blurring of important levels indicates the absence of major players in the market. On the one hand, wanting to take the risk and buy the euro in the current environment is not enough to push the pair above 1.1030. On the other hand, there are also no people who are eager to buy the American dollar after such a downward trend in the absence of new guidelines. The breakdown of the support of 1.1005 will again return the market to the location of the bears, which will push the trading instrument to the lows of 1.0960 and 1.0910. If the bulls are stronger, then fixing above 1.1030 will lead to an update of the highs of 1.1060 and 1.1090.