EURUSD Analysis: Negative German Growth, Italy Sticks to its Budget Plan
Euro, Italian Budget, German GDP and US dollar:
- German economy contracts in Q3.
- Italy and Brussels on a collision course.
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EURUSD Stuck Under 1.1300 on Poor German Growth Data and Italian Budget
The latest German GDP figures revealed the counties economy contracted in the third-quarter, fueling fears of a continued slowdown. The Q3 GDP release showed growth contracted by 0.2%, compared to an expansion of 0.5% in Q2, while annual growth fell to 1.1%.
Euro-Zone Q3 GDP data remained in line with market expectations with quarterly growth of 0.2% and an annual rate of 1.7%.
Late Tuesday, the Italian government rejected EU demands to amend its budget plans, leaving its growth target of 1.5% and its deficit projection of 2.4% unchanged, in a move that will likely spark disciplinary measures from Rome. The Italian government said that the 2.4% deficit target was a red line but that it would consider selling state assets to help boost GDP. The 10-year German/Italy government bond spread – an indicator of market stress – widened out by around 10 basis points to 313bps. The spread recently traded at 340bps, the highest level since April 2013.
IG Client Sentiment Data show investors are currently 61.6% net-long EURUSD – a contrarian bearish signal – however recent daily and weekly positional shifts suggest that EURUSD may move higher despite traders remaining net-long.
EURUSD remains stuck under 1.1300 – the August 15 swing low – and is likely to fall further with initial support at the 61.8% Fibonacci retracement level at 1.1187. The pair are currently trading around 1.1268, aided in part by a slightly weaker US dollar. The US dollar basket (DXY) is quoted at 96.77, down from Monday’s 17-month of 97.16.
EURUSD Daily Price Chart (June 2017 – November 14, 2018)
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