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Euro economy struggles to recover; BOE expected to lift economic growth

Euro economy struggles to recover; BOE expected to lift economic growth

Euro-area services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggles to recover from the deepest recession in almost four years. European Central Bank President Mario Draghi said this week that the euro area should begin a gradual recovery later this year as monetary stimulus works its way through the economy.  While investor confidence has risen, there remain signs some companies are struggling. European Union car sales fell to the lowest level for a January in at least 23 years, according to data this week.

Bank of England Governor Mervyn King and two other officials voted to restart government-bond buying earlier this month, showing the bank may be closer than expected to taking more action to lift economic growth. Unemployment data released at the same time as the minutes again showed a record number of people in work. He also forecast inflation would remain above target until early 2016, even without additional stimulus. The central bank also said it would disregard upward price pressures from higher university tuition fees and energy levies.

On the FX markets, GBP underperformed its peers on Wednesday following the release of the most recent BoE meeting minutes which revealed that 3 MPC voted for more QE. The MPC also considered cutting bank rate, buying other assets and changing remuneration of banks’ reserves. The pair fell almost 100 pips shortly following the release of the statement by the BoE, which in turn supported the USD index. In terms of macro data, the Office for National Statistics (ONS) said that employment rose by 154,000 to 29.73m in the three months to December, the fastest rise since last summer. In terms of technical levels, supports are seen at 1.5234 which is the 2012 Jan-13th low, followed by the 61.8% retracement of the 1.4228-1.6747 move at 1.5190 and then at 1.5125 which is the July- 21st 2010 low. On the other hand, resistance levels are seen at 1.5452, 1.5544 and then at the 10DMA line at 1.5570.

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