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Euro Adds to Recent Gains as German Manufacturing Orders Surge

Euro Adds to Recent Gains as German Manufacturing Orders Surge

2016-12-06 10:30:00
Nick Cawley, Strategist
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Talking Points

- German manufacturing orders jumped in October

- EUR/USD nears three-week high

- Italian banks steady but Banca MPS still struggling with debt

German manufacturing accelerated sharply in October, as confidence continues to return to the Euro-Zone’s growth engine. October total orders rose by +4.9% month-on-month against the prior month’s -0.3% and consensus forecasts of 0.6%. According to data from the German Federal Statistics Office, domestic orders increased by +6.3% and foreign orders by +3.9% on the previous month. New orders from the Euro area remained unchanged from the previous month, while new orders from other countries increased by +6.3% compared to September 2016. These numbers point to an uptick in German Q4 GDP of +0.5% to +0.6%.

The single currency continued its recent pull-back, with EUR/USD touching a high of 1.0783, just shy of levels last seen in mid-November. The Euro pulled back from its recent lows yesterday despite Italian PM Matteo Renzi losing the constitutional reform vote, as the predicted financial maelstrom failed to appear. PM Renzi who announced that he would resign yesterday in the wake of the result, has now agreed to postpone handing in his notice until the 2017 Budget has been approved, expected by the end of the week.

Italian bank shares continue to be closely watched as investors look for signs of stress in the Italian market. A recent FT report said that up to eight banks may have to close down if Renzi’s reforms failed, deterring institutions from recapitalizing the ailing lenders. Italian bank shares fell Monday but levelled out on Tuesday, although high profile Banca Monte dei Paschi di Siena slipped a further 2.5% lower. Banca MPS shares currently trade at €18.25, down from €120 this time a year ago.

Chart 1: EUR/USD 15-minute Chart (December 2 to December 6, 2016)

Euro Adds to Recent Gains as German Manufacturing Orders Surge

Ahead, German industrial production figures for October will be watched for any additional confirmation of ongoing strength in the economy, while Thursday sees the last ECB policy meeting of the year, and accompanying press conference. Markets are expecting President Mario Draghi to announce a six-month extension of the €80 billion a month bond-buying program, which is scheduled to finish in March 2017.

Read more: Euro Rallying as Italian Referendum Dashes MS5 Hopes

--- Written by Nick Cawley, Analyst

To contact Nick, email him at Nicholas.cawley@ig.com

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