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Euro Declines as Prospects for the German Economy Weaken, EZ GDP Falls

Euro Declines as Prospects for the German Economy Weaken, EZ GDP Falls

Christopher Vecchio, CFA, Benjamin Spier,

THE TAKEAWAY: EUR Euro-zone GDP (2Q A), EUR German ZEW Survey (AUG) > Economy contracts by -0.4% y/y, ZEW Economic Sentiment falls to -25.5 > Euro-zone weakest growth since fourth quarter of 2009, ZEW Economic Sentiment weakest since December 2011 > EURUSD BEARISH

Expectations among financial experts for the German economy have reached a yearly low according to the ZEW survey. The survey for economic growth came in at -25.5 for August, lower than expectations for a -19.3 survey result and nearly 6 points lower than last month’s survey.

Experts’ assessments of the current situation in Germany also reached a two-year low according to the ZEW survey, but overall remain positive. The current situation survey came in at 18.2 in August, beating expectations for a 17.5 survey result. The results of the ZEW survey of economic sentiment in the Euro-zone remained negative for the fourth straight month, the survey result was -21.2, which was better than last month’s -22.3 survey result.

Germany’s survey result shows that experts expect the economy to further suffer as the Euro debt crisis continues. The ZEW report mentioned that export oriented sectors will be affected. Additionally, German economic growth softened in 2Q according to today’s GDP release.

In addition to the German ZEW survey, the Euro-zone second quarter GDP release was at 05:00 EDT / 09:00 GMT. Growth in the Euro-zone contracted by -0.2% on a quarterly-basis, after falling flat in the first quarter. On a yearly-basis, growth contracted by -0.4%, weaker than the flat reading in the first quarter as well. Both the q/q and the y/y prints met expectations.

Among the swath of data this morning, it is increasingly evident that any short-term hopes inspired by a potential European Central Bank bond buying program will not solve the economic growth issues the region is currently facing. To wit: the European Central Bank injected over €1 trillion into the European financial system from December 2011 through February 2012 vis-à-vis longer-term refinancing operations (LTRO), and yet growth has done anything but rebound in the ensuing quarters. Regardless of further action, without significant economic structural reforms, including but not limited to more liberal labor market policies, the Euro-zone’s contraction will steepen through the rest of the year amid enhanced austerity measures in Italy and Spain.

EURUSD 1-minute Chart: August 14, 2012

Euro_Declines_as_Prospects_for_the_German_Economy_Weaken_EZ_GDP_Falls_body_Picture_3.png, Euro Declines as Prospects for the German Economy Weaken, EZ GDP Falls

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Euro reversed some of today’s earlier gains against the US Dollar following the survey results and the growth reading. Earlier today, EURUSD continued a three-week uptrend, climbing above 1.2350. There could be possible resistance at 1.2440/45. However, prices remained pinned lower, falling from 1.2369 ahead of the release to as low as 1.2350 soon after. The pair was trading at 1.2359 at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst and Benjamin Spier, DailyFX Research

To contact Christopher Vecchio, e-mail

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