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Forex News: Bundesbank Forecasts Scare Euro Traders

Forex News: Bundesbank Forecasts Scare Euro Traders

Benjamin Spier, Technical Strategist

After ECB President Draghi cut his forecast for Euro-zone growth during his press conference yesterday and the Euro erased the week’s earlier gains, the Bundesbank also cut its growth forecast for Germany and sent the Euro down further in today’s session. The Bundesbank is now predicting 0.7% growth in 2012, down from a previous forecast of 1%, and the central bank sees 0.4% growth in 2013, down from 1.6%.

The Bundesbank also forecasted inflation at 2.1% in 2012 and 1.5% in 2013, and they predicted that unemployment will remain above 7% through 2014. On the bright side, the central bank said they see a return to the growth path soon. The Euro fell from 1.2960 against the US Dollar to 1.2930 on the announcement.

Then, the Euro fell to 1.2920 on news of an earthquake in Japan. The earthquake was 7.3 magnitude and was a 4 on a local scale of 7. There were no widespread tsunamis following the earthquake, and the Euro briefly pared the losses as forex news sources reported no significant damage thus far. The Yen actually rose against the US Dollar following the earthquake news, as risk trends took a stronger hold on currency trading than worries about the direct connection between the Yen and possible damages to the Japanese economy.

Economic releases painted a worse picture of the European economy in today’s session. Both German and UK industrial production for October declined significantly and unexpectedly. A quarterly BoE survey saw an average prediction among Britons for 3.5% UK inflation in the next twelve months.

ECB member Nowoth said today that Greece, Portugal, and Spain may see an upswing, but Greece is not there yet. He predicted an economic low in the current fourth quarter. Draghi followed up yesterday’s press conference by saying today that lowering interest rates may spark depreciation pressures in currencies; yesterday the ECB left the interest rate unchanged.

EURUSD is now trading around 1.2930, and support could be provided around 1.2900, at the 50% retracement of the decline from October’s high to November’s low. Resistance could be provided by the key 1.3000 line.

In the North America session, US nonfarm payrolls change and the unemployment rate will be announced at 13:30 GMT, 85K and 7.9% are expected.

EURUSD Daily: December 7, 2012

Bundesbank_Forecasts_Scare_Euro_Traders_body_eurusd_daily_chart.png, Forex News: Bundesbank Forecasts Scare Euro Traders

--- Written by Benjamin Spier, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.