Euro remains under pressure over German economic growth concerns
The euro currency has remained under selling pressure against the U.S Dollar and the British pound since the German Federal Statistical Office released data showing that the German economy grew just 1.5% during 2018. The growth figures are the German economies weakest since 2013 and far below the 2.2% growth rates seen in both 2017 and 2016.
What is notable is the single currencies behavior since the release of softer German growth data, as investors and traders start to price in the possibility that the German economy may slow down further during the course of 2019. Investors are also clearly fearing the start of an actual recession in Germany, although the Federal Statistical Office noted that it is likely the German economy grew somewhat during the fourth fiscal quarter, which would help the European powerhouse economy avoid a technical recession.
A technical recession is categorized as two fiscal quarters of Gross Domestic Product contraction; the German economy contracted -0.2 during the third quarter of 2018. The official fourth quarter German GDP estimates will be released later next month and will be watched closely by market participants.
Economist attributed the drop in German growth to the ongoing global economic climate, as well as continued trade tensions with the United States and investors overall caution about the United Kingdom leaving the European Union without a deal in place. Declining German household spending and slowing export growth also contributed to the weaker German growth rate, which has been apparent in the recent IFO surveys and the much softer PMI manufacturing data from Germany.
Speaking inside the European Parliament this week European Central Bank President Mario Draghi told EU lawmakers that economic weakness in the eurozone could last longer than expected, although it was unlikely to lead to a full-blown economic recession for the trading block. EU officials also warned that if the UK leaves the EU on March 29th without a deal in place, it would likely negatively impact the European Union trading blocks already slowing growth.
EUR/USD Daily Candlestick Chart. Source: ActivTrader Platform
The euro currency had a fairly solid start to 2019 against US Dollar, with the EUR/USD pair trading at its highest level since November 2018 and eventually peaked around the 1.1570 level last week.
The rally started to unwind on Friday, as buyers failed to sustained gains above the 1.1500 level and crucially saw price sliding back under the pair’s 100-day moving average.
A clear break below the technically important 1.1460 support level this week, following the release of weak German growth data, saw the EUR/USD pair slide towards the 1.1400 level. The EUR/USD pair is now trading under the 1.1400 level as selling pressure accelerates, the most prominent support areas to watch for further weakness ahead in the EUR/USD pair are the 1.1295 and 1.1220 levels.
Written by Nathan Batchelor, External Analyst
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