German Factory Orders Beat Expectations But Continue To Slow

THE TAKEWAY: Factory orders beat expectations > economy may slow less than expected > EURUSD pares decline

German factory orders in May defied expectations of a dip into contraction territory coming in at 1.8% m/m amid forecasts of a 0.5% contraction, the year-on-year figure didn’t disappoint either coming in at 12.2% beating consensus expectations of 9.5%. Both readings were accompanied by upward revisions to the April numbers too, helping to boost the impact of the beat. While the month-on-month reading managed to keep its head above water it did still slow from the 2.9% reading in April as growth continues to slow even in the robust German economy. German Economy Minister Roesler stressed that the numbers are evidence that the upward trend remains in tact despite dwindling domestic demand. While the government official remains optimistic we believe that most indicators point to a slowdown ahead.

We have been entertaining the possibility that German growth may have peaked and the largest economy in the EMU will also fall to the hands of the ‘soft patch’ of growth which has already gripped many economies around the globe. The slowing manufacturing and services PMIs we have seen in recent days and weeks seem to confirm that the economy is in fact slowing, and while this mornings release did beat expectations it didn’t break out of the general slowing trend.

The impact of the beat was muted as most euro traders are focused on the ongoing Greek saga and the developments for its second bailout package, as well as the over-night downgrade at Moody’s of Portugal to junk status. The result was therefore very muted which saw EUR/USD climb a little further away from its lows by 1.4350 but still remains under intense pressure on the day. As the storm clouds gather over the euro-area we feel that the euro will be vulnerable to further losses against most major currencies as other economies continue to gain traction and recover while the euro-region flounders.

Written by Jonathan Granby, DailyFX Research Team