Eurozone continues to splutter along


Eurozone Q1 GDP confirmed at 0.4% q/q in the second reading, up from 0.2% q/q in the fourth quarter 2018. There still isn’t a full breakdown, but it is pretty clear now that domestic demand was the main driving factor, partly boosted by special factors like mild weather, the later timing of Easter, but also stock piling activity ahead of the initial Brexit deadline. This leaves the risk of a renewed slowdown in the second quarter, when Easter holiday’s will have halted construction projects. The ECB’s still very supportive monetary policy stance is keeping domestic demand underpinned, but the latest escalation in global trade tensions and ongoing Brexit uncertainty are keeping the balance of risks tilted to the downside. So far the ECB’s central scenario remains for the outlook to improve in the second half of the year, but expectations are that the central bank will push out the guidance on rates further into 2020, while keeping the option of a QE revival on the table and as part of the central bank’s regular tool kit. Also to keep spreads in as Italy jitters continue to add to volatility. Unless things get much worse, however, it is unlikely we will see any further asset purchases in this cycle, but the re-investment of the remaining stock will remain part of the picture for a long time to come.

The Euro remain heavy today with EURUSD testing the key 1.1200 again, and EURJPY moving another leg lower and under 122.50 for a new 2019 low, as the H1 time frame flirts with the over sold zone.


Stuart Cowell

Head Market Analyst

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