The unexpected return of growth in the eurozone private sector at the start of 2023 caused the euro to react somewhat subduedly, which is highly positive and supports previous claims made by European leaders that the area is prepared for a soft landing after high-interest rates and high inflation.
The composite purchasing managers' index increased to 50.2 points in January, above experts' predictions of a value of 49.8 points by a significant margin. It is noteworthy that the indicator has already been above the 50-point level that separates expansion from contraction for the first time since June of last year.
The future of the eurozone economy is being encouraged by several factors, including a decrease in inflation, a warmer-than-usual winter in Europe, and the loosening of supply chain restrictions.
Chris Williamson, the chief economist at S&P Global Market Intelligence, stated that although the economy has stabilized, the region can avoid a recession but has not yet resolved its issues. The increase in selling price inflation for both products and services puts pressure on the European Central Bank to further tighten monetary policy, he said. Demand is still declining; it's just doing so more slowly.
Remember that the European Central Bank has already raised interest rates by 250 basis points and will do so again the following week. It's still unknown what will occur at this meeting. While more hardline Governing Council members are calling for more dramatic changes, some CEOs are advocating for a more gradual approach.
The argument in favor of higher interest rates, according to Williamson, is strengthened by evidence of wage growth and accelerating employment growth. These factors have recently pushed up prices.
It is important to note that the composite indices for the two biggest economies, Germany and France, were still below 50 points.
In light of this, it is not unexpected that yesterday's report showed a rise in consumer confidence in the eurozone to its highest level since February of last year. This demonstrates the region's resiliency as it attempts to avert a recession this year. The measure increased from -22.2 in December to -20.9 in January, according to the European Commission. This is a little weaker than what economists predicted, who were looking for a rise to -20.
According to Valdis Dombrovskis, vice president of the European Commission, lower gas prices and more aid could prevent a recession in the European Union.
Regarding the technical analysis of EUR/USD, there is still demand for the single currency, and there is a potential that monthly and annual highs will continue to be updated. Staying above 1.0850 is important to achieve this, which will cause the trading instrument to surge to the area of 1.0890. Above this point, you can easily reach 1.0930 and update 1.0970 in the near future. Only the breakdown of support at 1.0850 will put more pressure on the pair and drive EUR/USD to 1.0805, with the possibility of falling to a minimum of 1.0770 if the trading instrument declines.
Regarding the GBP/USD technical picture, the demand for the pound is declining. Buyers must continue to trade over 1.2380 to keep their advantage. However, only the breakdown of resistance at 1.2440 will make it more likely that the recovery will continue to the area of 1.2500, after which it will be feasible to discuss a more abrupt move of the pound up to the area of 1.2550. After the bears seize control of 1.2380, it is feasible to discuss the pressure on the trading instrument returning. The GBP/USD will be forced back to 1.2325 and 1.2260 as a result, hitting the bulls' positions.
