Fundamental Analysis: Big Losses for the Euro after German Slump

The euro has tanked in today’s session against most major currencies after this morning’s data. Releases from both the eurozone in general and Germany and France in particular indicated a significant slump in manufacturing activity.

Euro-dollar has lost nearly a cent in today’s session so far, posting a dramatic loss to below $1.13 at the time of writing. EURJPY and EURAUD also made significant losses to ¥124.90 and A$1.592 respectively. Even against the beleaguered pound the euro reversed much of its recent gain, with EURGBP currently around 86.3 pence.

Data surprise hits the common currency

This morning’s range of data was full of disappointing releases for the eurozone’s economy. First there was French preliminary manufacturing and service PMI. Both of these missed expectations of small growth, coming in at 49.8 and 48.7 respectively. These releases indicate contraction in French services and manufacturing.

The main event which really gave fuel to the euro’s losses this morning was the German release at 08.30 GMT. Although service PMI was slightly better than expected, manufacturing data was very disappointing. Manufacturing purchasing managers’ index from Germany plunged to 44.7: this is the lowest figure for seven years.

The final series of poor data this morning from the EU was overall eurozone PMI. Again, preliminary manufacturing PMI indicated a bigger contraction than expected at 47.6. All of these figures together appear to support the ECB’s recent dovishness. They also give some support to markets’ fears over economic growth around the world in 2019.

In line with expectations, the euro’s gains against the dollar this week after the Fed’s dovishness were short-lived. Data like today’s make any move by the European Central Bank towards tightening look even more unlikely.

More German figures in focus next week

The impact of this morning’s releases means that traders will be most likely to focus on German data again next week. Ifo Business Climate is due on Monday at 09.00 GMT: the forecast is for a very slight gain from three-year lows to 98.7.

Mario Draghi’s speech next week is also important for the euro’s movements. The ECB’s president is due to speak at 08.00 GMT on Wednesday.

For the rest of this week, though, traders’ attention is likely to be on the EU’s summit. News of Brexit is also a factor that could drive volatility and possible further losses for the common currency.

Euro set to weaken further

Fundamentals in general suggest a further downward movement by the euro against most currencies into next week. However, traders should be careful not to ignore the technical picture, especially if oversold conditions prevail.

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