The EU released the growth forecasts for the Eurozone today and the picture wasn't rosy. The slowdown from China and faltering growth in the emerging markets, among other factors are likely to contribute to a further slump in the region. According to the growth forecasts released today, the 28-country EU growth is expected to stay at 1.90%, unchanged from 2015 while 2017 is expected to see economic growth expanding at a pace of 2.0%, a modest revision from 2.10% previously.

Releasing the economic forecasts, the EU commission noted that "the recovery was slow, in comparison to both historical as well as other advanced economies." On inflation, the EU commission expects Eurozone inflation to average just around 0.50% in 2016, a sharply downward revised estimates from 1.0% previous forecasts while in 2017, inflation is expected to rise to 1.50% but still below the ECB's 2.0% targeted mandate. On EU unemployment, the commission was more optimistic noting that the unemployment rate could fall to 9.0%, down from 10.5% at the most recent release and an upward revision from previously estimated 9.50%.

In regards to Germany, the EU's economic powerhouse, the commission trimmed the forecasts for both 2016 and 2017. It expected German GDP to expand at a pace of 1.80% into 2017, down from a modest previous forecast of 1.90%.

ECB to decide in March

The EURUSD is currently up 0.66% for the day, breaking above the 1.11 barrier. The single currency gained 1.70% already yesterday on a weaker US Dollar while currently up 3.22% at 1.118 since February.

The ECB, at its meeting in January, held rates steady but noted that monetary policy would be revised in March next month. Earlier, in December last year, the markets expected the ECB to announce further QE expansion which saw the Euro fall to 1.056 but with Draghi and team only extending the QE purchase deadline while cutting deposit rates further into negative, the Euro surged due to the Central Bank falling short of market expectations.

While a repeat of the same can be expected in the run-up to the ECB's meeting on March 10th, earlier this week, ECB Executive Board member, Yves Mersch watered down expectations noting that investors should not assume that the Central bank would aggressively beef up its stimulus purchases in March, noting that no decision was made as of yet and that all options were on the table.

He came out strongly against market expectations. "Sometimes I think people in the financial markets have to brush up on their English lessons to understand when we say nothing yet has been decided for March," he said, during an interview with the WSJ.

EURUSD – Long Term Forecasts

The weekly chart for EURUSD shows an upside breakout after prices stayed flat for the most part since December last year. With 1.12 now almost a done deal, a pullback to the previous levels of 1.09 – 1.075 is most likely to make any reasonable gains further. The pullback to 1.09 – 1.075 will also be decisive as economic data from both the US and EU unfold. For the moment, the markets have scaled back expectations of a March Fed rate hike as ISM data points to weaker growth in the US. In such a case, the ECB will be forced to do more than what it has planned as a weaker US Dollar could keep the single currency even more resilient.

(Click on image to enlarge)

EURUSD – Weekly Chart (1.09 – 1.075 makes for a decisive support)

Besides, the Central Bank decisions, the markets have seen that the Euro is a more preferred safe-haven against the US Dollar, evidenced by the previous strong rallies posted during the turmoil from China earlier in January this year. All said and done with the current market conditions fuelled with the slowdown from China, low Oil prices and Central Banks trying their best to boost inflation, including taking rates to negative, it would be a bit premature to expect the US Dollar/Fed to be the only man standing. For the moment, EURUSD bears are likely to take a backseat until the markets paint a better picture.