EURUSD May Weaken as ZEW Data Highlights Economic Weakness
Euro, German ZEW data and Italian Budget:
- German and Euro-Zone economic situation weakens – all eyes on the ECB.
- Italian Budget discussions continue.
German ZEW Data and Italian Budget May Weigh on the Euro
German ZEW data painted a mixed to negative picture Tuesday with a big miss in the current situation reading being marginally counterbalanced by the expectations and economic sentiment readings. The current situation reading slumped to 45.3 from a prior 58.2 (forecast 55.0), the expectations survey for December edged higher to -17.5 from -24.1 (forecast -25.0), while the economic sentiment survey nudged higher to -21 from -22 in November.
According to ZEW President Wambach, ‘The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone. This is indicative of relatively weak economic growth in the fourth quarter. In addition, uncertainties also remain in terms of the looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany’s exports.’ ECB President Mario Draghi’s rates decision and press conference on Thursday will be parsed closely for any signs that the central bank recognise this weakness.
Italy and the European Union remain on a collision course over the contentious Budget proposal from Rome with the EU continuing its demands that Italy reduce its deficit target from 2.4% to avoid economic sanctions. According to Italian press reports, Italy has said that it may be able to reduce its deficit by around EUR4 billion, around half the amount that the EU is calling for, although Italy may point out to the EU that France is now increasing its budget deficit and that Rome should be given further slack. President Macron’s concessions, after a month of violent protests, could add around EUR8-10 billion to the country’s budget deficit according to different estimates. There are also reports circulating that suggest that the EU will give Italy an additional six months leeway to help them push towards target.
EURUSD Daily Price Chart (April – December 11, 2018)
IG Client Sentiment Data shows investors are currently 52.4% net-long EURUSD – a contrarian bearish signal – however recent daily and weekly positional shifts suggest that EURUSD may soon reverse higher.
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