The Chinese authorities continue to express concerns and sound the alarm due to a new outbreak of coronavirus in the country. Chinese Premier Li Keqiang has issued a third warning about possible risks to economic growth. This indicates increased concern about the prospects for further GDP recovery, as large-scale restrictions and blockages due to COVID disrupt production and supply chains, which leads to unforeseen costs and expenses. According to the politician, China will study and adopt a softer economic policy as necessary to support the economy.
It is worth noting that this is far from the first warning from Lee, which highlights the likely damage suffered by the economy after the end of the next wave of the coronavirus pandemic. The introduction of several blockages and other similar measures aimed at combating the spread of the virus is hitting the country's growth rates very hard. Several experts suggest that the GDP growth rate may even decrease in the second quarter if the restrictions are extended at the end of this month for a longer period.
According to economists, about 373 million people in 45 cities in China are currently partially or completely in isolation, which is 40% of China's gross domestic product. Since the government has made containment of Covid a top political priority, local politicians are left with no options on how to adhere to strict compliance with prescribed obligations. Many overlook what is happening on the global market right now and underestimate the impact of a new outbreak in China, resulting in new supply chain disruptions. Much attention is still focused on the Russian-Ukrainian conflict and the increase in the rates of the US Federal Reserve System.
Against the background of maintaining the rate of morbidity, albeit not as high as before, the shares of Chinese companies fell on Monday. The Chinese Prime Minister also said yesterday that new measures to support the government should be implemented in the near future. We are talking about tax cuts, bond purchases, as well as incentives for employers to save jobs. According to him, local authorities should use their political potential to adapt targeted support measures in accordance with local conditions.
As noted above, quarantine measures have already had an impact on growth in the region and have put a strain on supply chains. Congestion in China's ports worsened after Shanghai also closed for quarantine. Shipowners are desperately trying to send ships to other ports of the country, but this brings little result. The fact that the restrictions imposed last month have already affected the world's second-largest economy remains a fact. A recent survey indicated that manufacturing activity in March fell to its lowest level since the beginning of the pandemic. Other data showed a strong blow to the services sector.
All this harms risky assets, which include the euro and the British pound. Given that the Federal Reserve is going to raise rates more aggressively, another fall in the euro and pound is unlikely to be avoided in the near future.
As for the technical picture of the EURUSD pair
Geopolitical tensions around Russia and Ukraine have again grown to a rather serious level, as Kyiv is delaying negotiations. Given the aggressiveness of the Fed's policy, it is best to bet on further strengthening of the dollar. To return the market under their control, euro buyers need a break above 1.0930, which will allow them to build a correction to the highs of 1.0970 and 1.1010. In the event of a decline in the trading instrument, buyers will be able to count on support around 1.0840, as it was at the end of last week. Its breakdown will quickly push the trading instrument to the lows of 1.0810 and 1.0770.
As for the technical picture of the GBPUSD pair
The pound has failed the lower boundary of the side channel and continues the bearish trend. Bulls need to think about how to return the resistance to 1.3040. A break in this range will open the way to 1.3105 and then to 1.3140. If the bears achieve a breakdown of 1.2990, you can safely catch the pound in the areas of 1.2950 and 1.2910. So far, nothing indicates that bulls will actively fight for the market even at current lows. The recently released data on the UK economy proved this once again.