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Round Up – Euro Falls Despite Strong German Data

James Boston
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Germany is starting to break away from the European pack in terms of economic recovery. There is no doubt that the Eurozone as a whole is on a gradual path back from the global recession. Germany however has consistently posted good economic figures over the past several months. This morning’s Gfk Consumer Confidence Survey is just the latest indicator of success in Europe’s largest economy. A figure of 8.5 was recorded against a consensus expectation of just 8.2, the magnitude of the gain was a surprise in its own right but the real positive was that in fact a slight retraction was expected.

A two speed European recovery, whether official or not, creates a major headache for policy makers, particularly the European Central Bank (ECB). It would be unwise to take any actions that may unstably accelerate Germany’s early recovery but it is even more unthinkable to curtail the green shoots of growth in the Eurozones more vulnerable economies. The answer, for now at least, appears to be to do nothing. The ECB Governing Council members will continue to walk a fine line that involves using rhetoric to attempt to talk up growth prospects for the overall Eurozone and by association the languishing periphery economies. This might just work, particularly if the German economy continues to impress, contagion from the bloc’s central and largest economy will, it is hoped, take hold eventually.

The Euro took today’s German data in its stride, initially reacting as anticipated by posting a moderate gain of 20 points to peak at 1.3756 against the US Dollar. This is where the Euro’s fortunes reversed. Running out of upward momentum the single currency began a slow slide back to it’s established base in the mid 1.3730s. In what is being commented on as a largely technical move, the buyers finally gave way early in the afternoon and EURUSD suffered a relatively dramatic fall, giving up 75bps and taking out the key 1.37 level in one move. The fall for now has been brought to a halt thanks to a very strong and established support point at 1.3665 but there is little sign of a bounce and selling pressure continues.

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