Euro Remains Weak As German ZEW Indicator Hits 8yr Low

Euro Remains Weak As German ZEW Indicator Hits 8yr Low
August 14, 2019


The eurodollar remains range-bound against the greenback despite reports of a sharp decline in German investor confidence in August. Notably, a rise in the US consumer price index in July was unable to lend enough momentum for the US dollar to gain ground against the euro. The EUR/USD pair continues to trade in a narrow range of 1.1190 and 1.1230 for the past one week.

The ZEW Indicator of Economic Sentiment for Germany plunged to -44.1 from -24.5 in July, hitting its lowest level since December 2011, according to data from the ZEW-Leibniz Centre for European Economic Research. The reading has increased concerns of recession in the biggest economy of the euro region. Economists had anticipated a reading of -28. Notably, the long-term average of the indicator is 21.60 points.

The survey data indicated that the current conditions index declined to -13.50, from -1.10 in the earlier month. The reported figure was the lowest since May 2010. Economists had forecast a reading of -5.90.

Commenting on the reading, ZEW President Achim Wambach said: “The ZEW Indicator of Economic Sentiment points to a significant deterioration in the outlook for the German economy.”

Achim Wambach also said that the heightened trade tensions between the US and China, currency devaluations and increasing chances of a no-deal Brexit has put additional pressure on the already weak Eurozone economy. He further stated: “This will most likely put a further strain on the development of German exports and industrial production.”

The investor confidence index for Eurozone fell to -43.6 from -20.30 in July. Likewise, the current situation index decreased 3.90 points to -14.50.

Germany’s exports continue to suffer due to the trade war between the US and China. Furthermore, weakness in the automobile sector has made it difficult for the manufacturing industry to rebound from the slowdown that began in 2018. The recent labor market data is also signaling weakness on account of economic downturn, fueled by external issues and weak consumer spending.

In the US, consumer prices increased in July, meeting economist forecasts, according to data posted by the US Labor Department. Notably, core consumer prices rose higher-than-anticipated for the reported month.

The Labor Department stated that the consumer price index rose by 0.3% in July, after increasing by 0.1% in both May and June. Economists had anticipated consumer prices to increase by 0.3%. The quicker price growth was mainly due to a considerable rebound in energy price, which jumped by 1.3% in July after falling by 2.3% in June.

Food prices were unchanged for the second consecutive month. Barring food and energy prices, core consumer prices increased by 0.3% for the second successive month, while economists had anticipated a 0.2% uptick. An increase in the price of shelter, airline fares, medical care, apparel, personal care, and household furnishings contributed to the rise in core consumer prices.

Regarding the increase in core prices Andrew Hunter, Senior US Economist at Capital Economics said the higher-than-anticipated rise in core prices “suggests that underlying inflationary pressures may not be as subdued as is widely assumed.”

Regarding the probability of rate cut, Hunter said: “Provided that the incoming activity data continue to deteriorate, however, the Fed still looks likely to cut interest rates again next month.”

On an annualized basis, consumer prices rose 1.8% y-o-y in July, up from 1.6% increase in June. Core consumer price grew 2.2% y-o-y in July, from 2.1% in June. Shelter and medical care prices recorded considerable year-over-year growth.

The weak German economic sentiment and the unresolved US-China trade war is anticipated to keep the EUR/USD pair range-bound in the short-term.

The historical price chart indicates that the EUR/USD pair trades below its 50-day moving average. Furthermore, the momentum indicator remains flat. As a result, we can expect the currency pair to remain range-bound between 1.1230 and 1.1170.

euro - technical analysis - 14th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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