Date: 07 Aug 2018

Monday’s poor German industrial orders data could suggest the euro zone’s largest economy may be slowing. Carsten Brzeski at Dutch bank ING commented the new orders data “do not bode well for German industry going into the second half of the year.”  Given Germany’s economic clout within the euro zone that prospect might not engender market confidence in the likelihood of a stronger euro. If Germany’s economy faces challenges, the market has previously had a tendency to characterise the euro zone’s glass as half empty rather than half full. Contrast that with analysts’ reactions to last Friday’s sub-consensus 157,000 rise in US non-farm payrolls for July. Adding to that total the 35,000 upwards revision to the June NFP makes 192,000 which matches the prior market consensus forecast. But perhaps it’s also illuminating that analysts also highlighted the fact that the demise of Toys “R” Us may have generated a one-off loss of nearly 32,000 US jobs but as US bank Goldman Sachs wrote “while that job loss is real, it tells us little about the underlying labor market trend.” In sum the July US NFP number might have seemed nominally disappointing but the impression left is that market analysts prefer to see the US economy’s glass as half full not half empty. That arguably gives the USD a psychological advantage over the euro.

by Neal Kimberley, External Currency Analyst.