Date: 27 Aug 2019

The German economy releases the latest quarterly growth data this morning, with most economists predicting that Europe’s largest economy contracted by 0.1 percent during the second fiscal quarter of 2018. Market participants will be well prepared for the negative growth print after the German flash second-quarter GDP number released earlier this month confirmed European policymakers worst fears.

Today’s data point takes on extra significance, following controversial comments from Bundesbank President and key ECB policymaker Jens Weidmann, who said that it is still too early for major economic stimulus from the European Central Bank. Financial markets had been expecting that the ECB will provide monetary policy easing to stimulate the European economy at the upcoming September policy monetary.

Jens Weidmann’s latest comments suggest that the ECB are still in wait-and-see mode, in regard to starting a new bond-buying program and may wait until the October policy meeting before using powerful monetary policy tools, such as QE. Many economists still believe that the ECB will cut interest rates by at least 10 basis points next month.

The German economy grew by 0.4 percent during the first quarter of this year, while the recent growth decline in the second fiscal quarter is largely attributed to a sudden slump in exports. The decline in German exports has been blamed on the slowing global economy, Brexit fears, and the Sino-U.S trade war.

The latest PMI data from Germany showed that manufacturing activity increased slightly from the previous month, but still remained exceptionally weak. Yesterday’s IFO survey from the German economy showed that the nations service sector may soon follow the manufacturing sector into a recession.

Later this week the German economy releases monthly unemployment data, which is expected to show the unemployment rate holding steady at five percent. The eurozone economy also releases key monthly CPI inflation data, which is predicted to fall well short of the European Central Bank’s mandated inflation target.

 

EUR/USD Daily Candlestick Chart | Source: ActivTrader

EUR/USD Daily Candlestick Chart | Source: ActivTrader

 

The euro still remains historically weak against the U.S Dollar and has been aggressively sold on any short-term counter-rallies. The prospect of QE and the weakening German economy continues to weigh on the overall upside potential of the single currency. Appetite below the 1.1100 level has been lacking, although a beak below the 1.1020 level this week, exposes a much deeper decline towards the 1.0960 level.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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