fundamental alert

Euro Breaks Out of Wedge Formation - Will German GDP Prevent a Push Toward 1.3050?

Monday, 24 November 2008 22:25:17 GMT  |  Terri Belkas, Currency Strategist

The euro finally broke out of a wedge formation on Monday thanks to a resurgence in risk appetite triggered by the US government’s announcement of a $306 billion rescue package for Citigroup.

Indeed, the news ended up being more beneficial for European stocks than US shares, as the DAX ended the day up over 10 percent compared to a 4.93 percent gain in the Dow and a 6.47 percent rally in the S&P 500. The move went against the economic data released this morning, German business confidence fell to the lowest level in almost 16 years in November. Indeed, IFO’s business climate index dropped to 85.8 from 90.2 - the lowest since February 1993 – as the Euro-zone tips into recession and the credit crisis continues. Looking ahead to Tuesday, the final reading of third quarter German GDP is anticipated to confirm that Europe’s largest economy is experiencing its worst recession in at least 12 years. Indeed, the preliminary results showed that GDP fell 0.5 percent in the third quarter from the previous quarter, following a 0.4 percent contracting. The combination of restrictive monetary policy in the Euro-zone along with slowing growth in other regions has taken a toll on both domestic and foreign demand, which is particularly problematic for this export-dependent economy. If GDP happens to fall more than forecasted, the news could weigh on the euro as it would add to speculation that the European Central Bank will cut rates aggressively next week. However, if the data meets expectations, there may be little reaction in the forex markets and EUR/USD could continue to make its way toward the 50 percent fib of 1.3768 - 1.2328 at 1.3049.

Related Article: Euro Unchanged Against US Dollar Despite Dismal Data - What Gives?

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.

Resources

• free demo account
• forex courses
• open an account
• real time news
• free webinars