The Euro zone a diverse union of countries linked by a monetary union is a complex set of economies where 19 European that are different from each other shares a single currency Euro. As the countries in the Euro zone are only connected by the monetary union but the fiscal one is still undone which makes it an unstable and sensitive economy.
After the Brexit the market was in fear that the other European countries might follow this step and they will also leave which kept the Euro down but the European central bank policies with the expectation that ECB will end its bond buying scheme and the leadership of President Mario the Euro as a currency pushed itself high form the dark cloud of Brexit.
The increase in GDP in the last two-quarter of 2017 Q1 and Q2 had boosted the Euro zone recovery. Quarter on quarter Euro Zone GDP expanded by 0.6%, up from a revised 0.5% in the first quarter which is in line with the expectations. Altogether, the growth is clearly showing that the Euro-Zone is still growing at a good pace with the Economic sentiment is at the multi-year high, and the labor market conditions are continuously improving.
The positive data supported by the stable political environment is showing a smooth road ahead. Greece is just closer to financial independence after the return to financial market along with France government which is also focused on financial growth. One more positive thing is that the IMF is now ready to support the country’s 3rd bailout program which is offering a conditional loan of USD 1.8B to the nation. The upgraded outlook of Euro zone was lifted by the positive performance of individual economies where 12 countries among 19 showed a lifter GDP forecasts including Italy, France, Spain, and Greece.
Here is a snapshot of the major economies of Euro zone which contributed to the growth of Euro zone economy
With continued improvement on the economic data front Germany is in a positive aura where the majority of hard and soft data are showing a positive growth. The strong export and IP growth are showing that the global cyclic movement had impacted the economy of Germany positively.
With keeping in mind the internal political instability in Europe and other positive aspects like an expected increase in wage demand due to the tight labor market and a healthy export demand is pointing yet another positive movement in GDP in coming future.
The Italian economy is also in a healthy state which we can see in the recent GDP numbers. The exports numbers and Retail sales are continued to show a positive move supported by the rising demand from EU centuries along with China and Russia.
On the other hand, weak banking system and the housing market is an area of concern. And the recent data of fiscal deficit is showing a tough road to fiscal consolidation. However rising business investments and healthy household spending and better tax incentives are showing a light and on the back of that, we expect a healthy movement in the economy in near term.
In order to heal the public finance crisis boosting growth numbers the reforms of President Macron showed in the market in July is giving some light of hope for the France economy and it is clearing the intention of the government to support the economy.
To reduce the increased public debt and to keep the fiscal deficit below 3% mark the government planned to cut 3% spending of GDP and increase taxation by 1%. This plan is well supported by the steady quarter on quarter growth which makes us believe that the economy will get pace in the coming year on the back of the export growth and elevated domestic demand.
Euro Index Technical analysis
The Euro Index, which measures the strength of Euro against 4 major currencies, US Dollar, British Pound, Swiss Franc and Japanese showed strength in past weeks supported by the healthy growth in Euro Zone economy. On the technical ground, the Euro Index is following a short term bullish trend after the breakout of the long consolidation. The steep positive movement is expected to take rest near the support zone of 92.00 levels.
The Euro as a currency is finding some strength and the recent down movement can be considered as a pull back and after a short negative movement, we expect the Euro Index to again start giving its bullish movement as the bulls are still in control of the market.
We expect that the Euro will test the level of 92.00 in near term and after the pullback, it will again start giving positive movement as the uptrend is still intact which can push the price further up in near term.
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