EURO TALKING POINTS – EUR/USD, EUROZONE GDP, GERMAN ECONOMY
- German and Eurozone GDP likely to fall short of forecasts
- The spread on Italian-German 10-year bond yields may widen
- Euro particularly sensitive amid declining economic performance
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The Euro may have a painful fall tomorrow if quarter-on-quarter German and Eurozone GDP falls short of expectations. Current forecasts stand at 0.1 percent and 0.2 percent, respectively. Euro Area growth has been dramatically slowing and major economic indicators continue to underperform relative to economists’ expectations as shown by the Citi Economic Surprise Index.
If data continues to disappoint and the outlook for EUR/USD continues to look gloomier in the face of growing political obstacles, it is likely the Euro will continue to feel pain. As it stands, the three largest Eurozone economies – Germany, France and Italy – are all struggling to keep up steam, with the last one only recently having entered a technical recession.
As risk aversion turns investor’s optimism sour, the spread between Italian and German 10-year bond yields has widened over 100 percent since May, signaling greater trepidation in lending to Rome vs Berlin. The shifting political landscape is also weighing down on the Euro. The decline of Europhile liberals combined with rising Eurosceptics ahead of the European Parliamentary elections is also concerning.
Spread on Italian-German 10-Year Bond Yields
Looking ahead, the Euro will struggle to maintain any significant upward momentum following yesterday’s disappointing industrial production data. Following the release, EUR/USD dropped and closed below 1.1269 with the next possible support at 1.1216. Given the fundamental outlook, it is difficult to say with confidence that the Euro has much room for upward momentum considering the many hurdles it must overcome in 2019.
EUR/USD – Daily Chart
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter