Daily Market Review - 02/27/2014

EUR/USD

The pair is going down and at the moment support at 1.3661 is being tested. If there is a decisive break below it then the downward move will extend to 1.3576. Otherwise there will be a bounce back up.

USD/JPY

The pair is consolidating. So in the near term no clear trend is seen. In the long run taking to account prior bearish trend, it is likely to resume after the end of that period.

GBPUSD

The pair is still correcting its recent remarkable appreciation. Obviously the slope is getting more and more straight suggesting the approaching end of correction with probable subsequent resumption of upward move.

Market Review

While most European states are struggling in vain against record high unemployment, Germans are purchasing. According to GfK Consumer Sentiment Index in Germany has risen up to 8.5, which is the highest figure since January 2007. It is positive for EURUSD, because against the background of weak economies in the EU, inner demand might stimulate higher pace of growth of German economy this year.

But in 2014 the Euro zone might show some growth as well. According to the last forecast of the EU commission, the European GDP this year might add 1.2% and next year 1.8%, and that is after economy contraction 2 years in a row. At that such weak growth can’t improve things on labor market. In 2015 there might be an insignificant unemployment decline to 11.7% from current 12%.

It is important to remember about a substantial debt load of national governments, households, and companies. In most European states we haven’t seen more or less significant move to downgrading of debt. The side effect of program of budget economy was the reason for a rush, when in order to reduce deficit expenditures were cut, what eventually inflicted damage to GDP.

Later on the GDP decline lead to reduction of tax inflow, what has become the reason for deficit remaining on prior levels. The EU states were supposed to bring deficit to the European norm of 3% of GDP last year, but so far there is no advancement in that direction. In Spain the European commission expects deficit to remain at 6.5% next year. So the goal of stabilizing the index by 2016 looks implausible already right now.

Forecast inflation also can’t be called encouraging: 1% and 1.3% in current and next year respectively. With such inflation there is no point to expect the decrease of the debt load. The thing is that regardless of low inflation overall there is no softening of rates on credits in the Euro zone. But vice versa an insignificant growth is seen from autumn, what of course doesn’t make the ECB look well.

Economic Calendar

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