The Irish question

Fundamental analysis 24.06.2014

Echoes of a slowdown in the euro zone are now being heard in Germany. The business activity index fell to 109.7, arriving at the low level of last December. If this index is analyzed by sector, the greatest loss was suffered in production. In general, as a result, the German GDP may show growth in the region of 2%, which in the current environment is an unattainable value for their colleagues in the currency bloc. 

Moreover, the cornerstone of the German stability remains domestic consumption. According to recent reports, wage growth over the last year for inflation was 1.3%, which was the best growth in the last three years. The consumer sentiment index is also stable, but it complicates the work of the ECB, since low inflation feels quite differently in Germany and the rest of the euro zone. 

Demonstration events unfold around Ireland, where on the background of a stabilization of the economic situation, the government hints at the possibility of a softer version of the execution of the program of reduction in government spending. Let me remind you that at the end of last year, the country was able to abandon the financial aid package and returned to the debt market, where it was greeted by investors, with record low interest rates. 

According to the plan, in the next year with a reduction in costs and some increase in taxes it is projected to save about € 2 billion. However, after the results of the European parliamentary elections, when yesterday’s supporters of the ruling coalition began to vote for the opposition, the government is talking about the possibility of less drastic measures, being mindful of the upcoming national elections in 2016. 

A significant role in the position of Dublin is the forecast for economic growth, which this year could reach 1.7%, and 3% in the next. Earlier on, the IMF released a report stating the impossibility of reducing the budget deficit to European standards in 2015 without spending cuts of more than those € 2 billion. The problem is that the new wave of cuts could put an end to the recovery of GDP. 



I’m still trading the Eurodollar downward. Yesterday a report came out about the growth of sales in the secondary housing market in the United States. If today this trend will be sustained with the dynamics of the primary market, the dollar could get decent support, including the growth of industrial PMI with the background of extremely weak PMI statistics in the euro zone. 

RoboForex research department Stanislav Koval