Europe Economy Recession has come to an end (13-11-2009 EURUSD analysis)

Europe’s Economy Emerges From Recession on Exports (Update2)

By Simone Meier

Nov. 13 (Bloomberg) -- The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending.

Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey.

Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery.

“The euro-zone economy has officially turned the corner and that is cause for relief, but not celebration,” said Martin van Vliet, a senior economist at ING Bank in Amsterdam. “The economy remains in a fragile state and is recovering mainly because of government stimulus and temporary inventory effects.”

The euro was little changed against the dollar after the release, trading at $1.4874 at 10:30 a.m. in London after rising as high as $1.4902 earlier today. The yield on the German 10- year benchmark bond dropped 0.2 basis points to 3.34 percent.

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After reading the above news about the end of the recession in Europe, we may make some expectation in future interest rates in Europe. As the economy still does not have much signals for recovery, we could not expect an increase in interest rate in a short time. After the news had been released, EURUSD had dropped a bit and this is very reasonable as the interest rate might not change in a short time. I have done an analysis on the EURUSD rate.

It looks like the rate is breaking down through the lower up-trend line, and aiming to go as low as the 50-day moving average, which has been a big support in these few months. To be a more careful investor, the strategy is to wait till the rate goes down to the 50-day moving average, which is around 1.4749, and we could hold long position. Afterwards, 1.504 is a very big obstacle and it would be a nice price to sell some to lock profits.