The recovery of Germany’s growth after economic decline in second half of 2018 will support EUR/USD bulls

As long as the US dollar is weighing the chances for the federal funds rate cut in 2019, and the euro is puzzled by the question whether the Germany's economy will be able to recover after the losses, the EUR/USD will be hanging inside the range of 1.125-1.15. The increase in the US durable goods orders in January by 0.4% M-o-M hasn’t impressed the bears that much. After the moderate-positive statistics was released, Macroeconomic Advisers hasn’t changed its forecasts for the US GDP in the first quarter. The company expects the indicator to grow at +1% Q-o-Q, following the rate of +2.4% in the October-December period.

However, according to Bloomberg Economics, Deutsche Bank and Morgan Stanley, the global GDP growth will hit the low in the first or in the second quarter, followed by the increase during the rest of the year. The pause in the Fed’s monetary normalizing, the truce in the US-China trade battle and the China’s monetary and fiscal stimulus will drive the global growth up. It is not so good news for the greenback that usually growth stronger amid the US GDP leading growth over the global indicator.

Much in the future EUR/USD trend will depend on Germany. In the second half of 2018, affected by some temporary factors, the country’s economy lost 0.5% following each of the two last quarters of the year. In money terms, according to The Kiel Institute for the world economy, the losses amounted to about €34 billion. Following the OECD and the ECB, IFO has also revised German GDP forecast down. The Institute doesn’t expect the leading euro-area economy to expand by over 0.6% Y-o-Y. However, the IFO notes that low inflation, strong growth of wages and fiscal incentives will create favorable environment for consumers and will support German GDP growth in 2020 and later.

Forecasts for German GDP growth

Source: Bloomberg

The markets still have doubts that the Fed will hike the interest rate at least once and hope that forecasts for German GDP will improve. Even if it won’t happen now, it will a bit later. If it is really so, it is the right time to buy euro to the US dollar. After all, a new round of trade wars can set the EUR/USD bulls back. Donald Trump said he wouldn’t sign any deal that doesn’t comply with the U.S. interests. It is quite a serious step after the optimistic speeches of the U.S. president at the turn of spring and winter.

The euro may respond to the renewed demand for safe havens in general and for the USD in particular by lower a less probability of messy Brexit. The no-deal divorce is needed by neither the US nor the UK; as the EUR/USD and GBP/USD are going in sync and the pound has feature the best daily growth since April 2017 amid the UK parliament willingness to avoid messy Brexit supported the single European currency. Nonetheless, without fresh drivers, it will be hard to drive the EUR/USD outside the consolidation range.

 


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Price chart of EURUSD in real time mode

Euro trusts in Germany

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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