Eurozone GDP contracted by 5.1% in 2020

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Market Watch review. 03.02.2021

In today's release, we’ll cover the following topics:

  • Eurozone economy under threat.
  • EUR / USD is preparing for a trend change.
  • Update of annual highs in the oil market.
  • Publication of business activity indices.

The Eurozone GDP growth rate change report for the fourth quarter of 2020 was released on Tuesday. As a consequence, we already know the final result for the whole previous year. The actual data was better than the forecast, but do not rush to rejoice for Europe and actively buy the euro.

At the end of 2020, the Eurozone's GDP contracted by 5.1% with a projected decrease of 5.4%, while the US GDP contracted by only 2.5% year on year. Comparing these two economies, it becomes clear how much worse the situation in Europe is.

As a result, there is a risk of a rather strong weakening of the EUR in the medium term. Moreover, the incoming macroeconomic statistics for the first month of this year only indicate a further slowdown in the economy of the currency block, thereby increasing the demand for the US dollar and contributing to the weakening of the EUR/USD currency pair. Please note that sellers are already trying to break the trend line and change the overall dynamics of the pair's movement.

Shifting to the oil market, I will note the update of the annual highs. The price of American WTI crude oil broke above $54.5 per barrel – it was at this level that the maximum of February 2020 was set. Support for oil quotes is provided by the decision of Saudi Arabia to reduce oil production by 1 million barrels per day, which came into force on February 1. Also, the growth of the stock market, which started the current week quite well, contributes to an increase in demand for black gold.

The local target for buyers is $59.5 per barrel, which is the next strong technical resistance level. The mentioned target will be achieved only on condition of further stimulation of American economy and strict fulfillment of oil production quotas by all OPEC+ members.

Concluding today's review, I would like to mention the forthcoming publication of business activity indices for European countries as well as ISM composite index for the USA. Let me remind you that Europe will get the final data, so only a significant deviation from previous values can have a noticeable impact on EUR. While the US report release might be accompanied by a spike in USD trading volatility.

Closely monitor the news background and be prepared for all the surprises of the market.

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