The economy grew at its slowest level in four years with 3Q2018 GDP up 0.2% while on an annualised pace, the economy expanded 1.7%. We find the growth data somewhat confirming that the Eurozone GDP growth has slowed progressively in 2018, thus darkening the outlook for the single currency. Such weak data has emerged at the point of time where economic and political headwinds are mounting.

Driven by weak data and political issues, we now believe it will be an increasing challenge for the European Central Bank (ECB) to end its asset-purchase stimulus plan in December. We believe the latest data may have marked a watershed moment for the single currency and the region's prospects because the ECB had forecast a much faster rate of expansion.

We believe the appeal on euro currency leans on the expectations that the ECB will end its quantitative easing programme in 2018 and begin raising interest rate some time in 2019. And so, the GDP data is important as it has a direct bearing on consumer price inflation, which is itself important for questions around interest rates. Though we are still maintaining our view that the ECB will continue its plans to end asset purchases by end- 2018 , we expect the EUR/USD to continue trading heavily in the near term due to a lack of evidence to support a material upward adjustment to ECB interest rate expectations.

• The economy grew at its slowest level in four years. The GDP rose 0.2% in 3Q2018 from 0.4% in 2Q2018. On an annualised pace, the economy expanded 1.7% in 3Q2018. GDP grew by 2.7% in 4Q2017 before the expansion slowed to 2.4% in 1Q2018 and 2.2% in 2Q2018.

• We find the growth data somewhat confirming that the Eurozone GDP growth has slowed progressively in 2018, thus darkening the outlook for the single currency. Such weak data has emerged at the point of time where economic and political headwinds are mounting.

• Although the 3Q2018 GDP growth of 0.2% is preliminary and could be revised once the national authorities release the full picture of the economy, the 0.4% GDP in 2Q2018 felt like a disappointment at that point in time. But now we feel that number could be the last of the growth cycle. It is beginning to appear to us that growth will return to previous rates anytime soon.
• Driven by weak data and political issues, we now believe it will be an increasing challenge for the European Central Bank (ECB) to end its asset-purchase stimulus plan in December. We believe the latest data may have marked a watershed moment for the single currency and the region's prospects because the ECB had forecast a much faster rate of expansion.

• We feel the appeal on the EUR/USD leans on the expectations that the ECB will end its quantitative easing programme in 2018 and begin raising interest rate some time in 2019. So the GDP data is vital as it has a direct bearing on consumer price inflation, which is itself important for questions around interest rates.

• However for now, we are still maintaining our view that the ECB will continue to stick to its plans to end asset purchases by end-2018. We will now be looking at potential incoming data to ascertain if the policy tightening will take place. Thus, we expect the EUR/USD to continue trading heavily in the near term due to a lack of evidence to support a material upward adjustment to ECB interest rate expectations.

Source: AmInvest Research - 31 Oct 2018