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EUR Analysis and Talking Points

  • Germany Heading for a Recession
  • Downside Risks to Growth and Inflation to Postpone ECB Rate Hike

For more in-depth analysis on EUR, read the brand new Q1 2019 FX forecast guides

Germany Heading for a Technical Recession

German data continues to deteriorate with the latest industrial production figures falling sharply. The monthly rate surprised to the downside with a fall of 1.9% (Exp. 0.3%), which in turn dragged the yearly rate to -4.7% (Exp. -0.8%). This also follows yesterday’s weak factory order, consequently increasing the risk that Germany is heading for a technical recession. As such, EURUSD is softer this morning in reaction to yet another soft reading out of Germany, while resistance at 1.15 also proved to be a stumbling block for the pair. This in turn increases scope for another test of key support at 1.13. As a reminder, German GDP contracted by 0.2% in Q3, which was the worst performance in 5yrs. Next reading is scheduled for February 14th.

Downside Risks to Growth and Inflation to Postpone ECB Rate Hike

Not only is it growth that is heading lower but also inflation risks in the Eurozone are increasingly skewed to the downside, with the latter being weighed by the fall seen in oil prices. Last week saw headline Eurozone inflation drop to 1.6%, while the core reading remained subdued at 1%. Subsequently, this suggests that a deposit rate hike by the ECB this year looks somewhat doubtful. Money markets currently attach 45% chance of a 10bps rate hike by the year end.

IG Client Sentiment – Current sentiment shows 57% of clients are short EUR/USD, while signals are mixed.

Recommended Reading

Eurozone Debt Crisis: How to Trade Future Disasters – Martin Essex, MSTA, Analyst and Editor

EURUSD PRICE CHART: Daily Time-Frame (Aug 2018-Jan 2019)

EURUSD Analysis: Crucial Support in Focus, Germany at Risk of Recession

Chart by IG

KEY TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX