Eurozone Investor Confidence Drops To Six-Year Low

Eurozone Investor Confidence Drops To Six-Year Low
October 8, 2019


The Eurodollar started the week in a poor form against the greenback. In the European session yesterday, the euro declined against the US dollar following the release of unimpressive factory orders data for August. The euro dollar’s decline was also aided by the decade low investor confidence as revealed by the Sentix research institute. The EUR/USD pair opened at 1.0983 and fell to a low of 1.0961 before rebounding to a high of 1.1000 levels.

German statistics organization Destatis stated that factory orders declined 0.6% m-o-m in August, missing analysts’ anticipation for a 0.4% drop, but better than the 2.1% drop recorded in July.

The decline in factory orders was primarily driven by a 2.6% drop in domestic orders, while overseas orders increased 0.9%. Orders from the eurozone and the non-euro zone increased 1.5% and 0.4%, respectively.

On a y-o-y basis, factory orders dropped 6.7% after declining 5% in July. Economists had anticipated a 6.6% decrease.

Likewise, according to the behavioral research institute Sentix, German investor confidence crumbled in October to the weakest level since July 2009 in spite of the stimulus measures announced by the ECB (European Central Bank).  The sentiment indicator deteriorated to -19.4 in October, from -12.8 in the earlier month. The current situation indicator declined to -18, from -10.5, and the expectations index plunged to -20.8, from -15 in September.

Also, the Eurozone investor confidence declined to its lowest level since early 2013 in October.

The investor confidence index declined to -16.8 in October, from -11.1 in the earlier month. It was the lowest reading since April 2013 and below economists’ anticipation of -13. The index pertaining to assessment of current situation fell to a five year low of -15.5, from -9.5 in September. Similarly, the expectations indicator dropped to -18 in October, from -12.8 in September.

Last month, the US Federal Reserve and the European Central Bank introduced easing measures in September. The ECB announced a 10 basis point cut to the deposit rate to -0.50%. Additionally, from November 1st, the bank is scheduled to restart its asset purchase program (APP), with monthly purchases of £20 billion.

Despite the weak economic data, the eurodollar was able to rebound against the greenback as the market is not expecting any significant breakthrough in the upcoming trade talks between the US and China.

The US and Chinese officials will meet face-to-face on Thursday and Friday to sort out differences over trade as tariffs on $250 billion worth Chinese goods is set to increase from 25% to 30% on October 15th, unless the White House postpones or terminates the duty hike through an announcement.

China is not comfortable negotiating about the subsidies offered to some sectors and the removal of certain barriers to overseas enterprises in their efforts to gain access to the Chinese market. US President Donald Trump has repeatedly alleged that China gains purely by “unfair” trade practices in the global market for manufactured products.

Michael Every, an economist at Rabo bank, believes that refusal by the Chinese to modify its basic economic model, which is of concern to the US, will not surprise any economist. Every said: “There should be no surprise on the Chinese refusal to address its structural economic model: that is something I have reiterated would be the case time and again, and is the key reason why we do not expect a real deal to be done.”

The latest tariffs announced by the White House will become effective on October 15th. Economists feel that the Chinese would undoubtedly reciprocate, thereby adding pressure on the already fragile world economy. Further heightening of tensions will force the Fed to consider additional easing measures, resulting in weakening of the greenback.

Every further opined that Trump may not budge easily and would rise up to the occasion in case the Chinese try to put him under pressure. He said, “Trump ALWAYS escalates when put under pressure, and has never shown anything so far but a tendency to raise tariffs when disappointed. If China thinks Trump is going to crumble now just because he faces possible impeachment, they are about to get a very nasty surprise.”

The weak economic data from the eurozone and uncertainty over the US-China trade talks are expected to keep the EUR/USD pair range-bound in the short-term.

Technically, the EUR/USD pair is moving along an ascending trend line as shown in the image below. The next major resistance is anticipated only at 1.1020 levels. The currency pair is trading above the 50-day moving average, while the oscillator of moving average is in the positive region. As a result, we can expect the currency pair to move up in the short-term.

eur - technical analysis - 8th Oct 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.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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