FX.co ★ China's GDP declined by 6.8% in Q1. Is it a lot or a little?; Overview of EUR and GBP

Another wave of panic sales hit the global markets on Wednesday and contributed to the growth in demand for the dollar across the entire spectrum of the currency market. There are two main reasons – failed reports on industrial production and retail sales in the USA, as well as the risk of early quarantine measures, which could lead to another wave of the coronavirus pandemic. On Thursday morning there is an attempt to pullback, but it is only technical in nature.

Retail sales in March declined by 8.7% in the United States, it occurred even before the introduction of large-scale quarantine measures, which means that they were much worse in April. It is the same with industrial production - a 5.4% fall in March, capacity utilization declined from 77% to 72.7%, business activity indices in the industrial sectors of the New York Federal Reserve - the Philadelphia Federal Reserve fell to historic lows in April.

The number of applications for unemployment increased by 5.2 million, over 4 weeks the total number of applications amounted to 22 million, or 13.5% of the workforce. For comparison, in order to create these 22 million jobs, the US economy took 10 years.

Despite the gloomy current picture, companies still expect a sharp recovery in activity over the next 6 months:

The decline in China's GDP in the 1st quarter, as follows from the report published this morning, amounted to 6.8%. The decline was recorded for the first time since 1992, and despite the fact that the Chinese economic recovery has already begun, it will take a long time to return to the growth course. Only large companies have reached full capacity, and the service sector as a whole is still in crisis mode.

On the other hand, a full recovery of exports in the context of a pandemic in the rest of the world is impossible. Therefore, the second quarter, obviously, gives a negative GDP growth. Other countries are lagging behind China, and as a result, a recovery from the crisis is unlikely in the next six months. Meanwhile, oil will remain at low levels, and demand for risky assets is unlikely to resume.

EUR/USD

Despite the fact that the euro did not deviate from Wednesday's general trend of strengthening the dollar, it remains strong among G10 currencies after the classic safe havens of CHF or JPY. A decline below the level of 1.09 looks temporary and makes it possible to buy EUR from a lower level.

ECB President Christine Lagarde reiterated the main goals of the bank in the current conditions once again – setting swap lines for the euro, helping the economy and being ready to change the size and composition of the asset purchase program. Thus, markets are inclined to believe that the ECB will increase the size of its program by 750 billion euros, but even in this case, the speed of its purchases will significantly lag behind the Fed.

On Friday morning, the EUR/USD pair is still below the support level formed by two lows of March 22 and April 6, a return to this line in the region of 1.0880/90 will give an answer to the question about the short-term forecasts of the euro. In case of an exit above, the development of an upward movement with the target of 1.0970 / 1.10000 should be expected, another wave of unexpected panic can prevent the growth.

GBP/USD

Trade negotiations between the UK and the EU are still in focus, news about them carries certain risks for the pound. Their resumption on Wednesday were ignored by the markets, and the parties confirm their commitment to adhere to the previously announced plans.

The pound managed to hold above the support of 1.2430 / 50 and has some chances of resuming growth. While fundamental factors are not in favor of the pound – there has been a slowdown in the spread of coronavirus in Germany and Italy, which increases the chances of an earlier start to economic recovery, the situation in the UK is much worse. Foreign Minister Dominic Raab announced on Thursday that quarantine measures would be extended for another 3 weeks, Bank of England spokesman, Tenreyro, expressed strong concern primarily about the inability to predict the depth of the fall in the main economic indicators.

Buy with a stop at 1.2395; target at 1.2600.1.2650.