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FX.co ★ EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

The pressure on the European currency continued to persist today amid data that indicated a slowdown in the private sector in many European countries. And although this was quite expected, the euro slipped against the US dollar and reached another weekly low, renewing a rather important support level. So far, nothing says that the bearish trend in the European currency, which began at the end of last week, has any prerequisites for completion. Sellers of risky assets manage to update daily lows every time, after which they receive a good rebuff from buyers - however, this does not affect the situation in any way.

EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

Let's quickly go over the technical picture of the EUR/USD pair. And although the pressure on the trading instrument returned immediately after traders achieved a breakdown of support at the base of the 20th figure, it was not enough to build a larger intraday downward trend. Only a repeated breakdown of 1.2000 will lead to a new sale of the euro in the area of the lows of 1.1960 and 1.1920. It will be possible to speak of an upward correction only after we see a breakout of the resistance at 1.2035. In this case, we can expect the growth of the trading instrument to the area of the highs of 1.2075 and 1.2115.

Inflation is not a problem

Today, the chief economist of the European Central Bank, Philip Lane, raised the topic of inflationary pressures, which in recent years has begun to "procrastinate" in the media more often. Investors look with apprehension at the figures shown by the statistics, while officials are trying with all their might to calm them down - saying that there is absolutely no reason to worry. Philip Lane said about the same today, downplaying the growing global inflationary pressure, recalling that the observed short-term rise in prices will not lead to long-term price pressure. Speaking at the official forum of monetary and financial institutions, Lane said that the surge in inflation this year is in many ways a reaction to last year's negative shock, and one cannot but agree with that. The deferred demand after the lifting of quarantine measures has already led to a surge in retail sales, which is forcing prices to gradually creep up. According to the chief economist of the ECB, a strong labor market is a key to sustainable price increases, and it is in this area that there is still a significant recession. Thus, there is absolutely no reason to worry.

EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

Regarding the skyrocketing prices of commodities, copper and lumber, which have seen huge leaps in recent times due to supply chain disruptions and backorders, Lane also sees no major problem in this component. "The price pressures that some of the world's big companies are creating are not enough on their own to create sustained inflation," he said. "You need a strong labor market, which is now gradually lagging behind the overall economic recovery."

But there is a problem, today's inflation report says a little about the opposite. According to EU data from Eurostat, producer price inflation accelerated in March this year due to higher energy prices and jumped to 4.3% in March from 1.5% in February. Economists had forecast a 4.2% rise in prices. On a monthly basis, producer prices rose 1.1% as expected, after rising 0.5% a month ago.

Insufficient growth or preconditions for recession

Another IHS Markit report pointed to a recovery in private sector activity in the eurozone, although the May reading is unlikely to be as optimistic. Many investors understand this, so there was absolutely no reaction to this data on the market. And if you look at the report separately by country, then after that it wants to reopen short positions in the euro. Let's figure it out.

EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

According to the data, the eurozone composite index continued to rise thanks to growth in both the manufacturing and services sectors. The index rose to 53.8 points in April from 53.2 points in the previous month. Economists had expected a jump to 53.7 points. Let me remind you that an estimate of 50 points and above indicates the growth of the sector.

Thanks to good growth in manufacturing, the manufacturing index also went up. But we talked about this yesterday. Today we were more interested in data on the service sector. The final PMI in the euro area services was 50.5 points against 49.6 points a month ago and 50.3 points at the forecast of economists. However, given the new wave of infections from new strains of COVID-19 and restrictions, it is difficult to imagine that business activity in the service sector will continue to recover. The only hope is the recent progress in vaccination of European countries, which suggests that the eurozone economy will begin to recover in the second quarter of this year, after the double recession that it showed at the end of last year and early this year.

If we look at the countries separately, Spain posted the strongest growth in more than two years. Meanwhile, France and Italy saw moderate increases in the rate. But the growth of the private sector in Germany, which is usually ahead of the neighboring countries, on the contrary, has slowed down. The index of business activity in the service sector fell to 49.9 points from 51.5 points a month ago. In France, the index of business activity in the service sector rose to 50.3 points from 48.2 points in March. In Italy, a decline was recorded in the service sector. There, the PMI index fell to 47.3 points from 48.6 points a month ago.

China is the global engine of the economy

EUR/USD: China to lead global economic growth for the next 5 years. Eurozone inflation still does not pose a threat

In conclusion, I would like to say a few words about the current forecast of the International Monetary Fund, from which it clearly follows: China will be the main source of world economic growth in the coming years. The world has recovered from the coronavirus pandemic, which will surely lead to a sharp economic recovery, and as many have become accustomed to, China will be in the forefront.

According to the IMF's calculations, China will account for more than one-fifth of the world's total gross domestic product growth in the five years to 2026. Global GDP is expected to grow by more than $28 trillion to $122 trillion over this period, after falling by $2.8 trillion last year. According to the IMF, the US and India will be the second and third largest contributors to global growth during this period, while Japan and Germany will round out the top five.

The IMF predicts the global economy will grow 6% this year and then slow to 3% by 2026. Growth is also expected to be uneven in the near future, as emerging economies suffer heavy losses and show a slow recovery.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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