Talking Points
- EURUSD was little changed in Europe Tuesday despite news that the Euro-Zone economy grew by 0.4% month/month in the fourth quarter of 2016 rather than the 0.5% originally estimated.
- Euro-Zone industrial output recorded its biggest fall in more than four years in December.
- Germany’s ZEW economic sentiment indicator fell by more than expected in February.
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EURUSD held its ground in Europe Tuesday despite a batch of disappointing Euro-Zone statistics. Fourth quarter economic growth was revised down to 0.4% month/month from the 0.5% initial estimate, while the year/year figure was revised down to 1.7% from 1.8%.
This was due at least in part to a drop in Euro-Zone industrial output in December of 1.6% month/month – its sharpest fall since September 2012 – rather than the 1.5% predicted by forecasters. The number was also worse than November’s 1.5%.
Moreover, the more forward-looking ZEW index of economic sentiment in Germany, Europe’s largest economy, fell to 10.4 in February from 16.6 in January, rather than the 15.0 predicted.
Against this background, EURUSD might have been expected to weaken, given that it makes a tapering soon of the economic stimulus currently provided by the European Central Bank less likely. However, the pair actually held up well, trading at 1.0619 late morning from 1.0617 just before the figures were released.
Chart: EURUSD 5-Minute Timeframe (February 14, 2017)
Inevitably, the UK’s Brexit decision to leave the European Union, US President Donald Trump’s trade policies and the upcoming elections in the Netherlands, France and Germany were all cited as possible reasons for the fall in sentiment.
ZEW President Achim Wambach said the drop in expectations was probably the result of recent weaker-than-expected figures from industrial production, retail sales and exports. “Political uncertainty regarding Brexit, the future US economic policy as well as the considerable number of upcoming elections in Europe further depresses expectations,” he said. “Nevertheless, the economic environment in Germany has not significantly worsened,” Wambach added.
Nonetheless, the latest data suggest that the outlook for Euro-Zone growth in 2017 is hardly positive, with rising energy prices an additional negative factor despite robust domestic demand in Germany. Figures released earlier for German fourth-quarter GDP revealed growth of 0.4% quarter/quarter, double the figure for the previous three months although just below the 0.5% predicted. The year/year figure, 1.2%, was lower than both the 1.7% consensus forecast and the 1.5% number for the previous quarter.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
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