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Euro Area Growth Holds Ground in Q4 – Impact on EUR/USD

Euro Q4 EUR/USD

Euro area Q4 growth held steady, influencing EUR/USD amid ECB rate-cut expectations and Federal Reserve speculation.

In a narrow escape from a technical recession, the German economy avoided a contraction by the slimmest of margins as Q3 GDP figures were revised from -0.1% to a flat reading. Subsequently, the first glimpse into Germany’s Q4 GDP aligned with market expectations, registering a 0.3% decline.

According to official reports, “The gross domestic product (GDP) fell by 0.3% in the fourth quarter of 2023 compared with the third quarter of 2023 after adjustment for price, seasonal and calendar variations. After the German economy more or less stagnated in the first three quarters, economic performance decreased in the fourth quarter of 2023. Compared with the previous quarter, there was a marked decline, particularly in gross fixed capital formation in construction and machinery and equipment after price, seasonal, and calendar adjustment.”

Meanwhile, the Euro Area narrowly avoided a recession as Q4 growth remained steady, surpassing expectations of a -0.1% contraction despite a 0.1% dip in Q3.

Euro Area Growth Holds Ground in Q4 – Impact on EUR/USD

Amidst these economic developments, the Euro (EUR/USD) is striving to stabilize around the 1.0825 level after reaching a low of 1.0796 on Monday. Since the previous year’s close, the single currency has faced headwinds, with growing expectations of an earlier and more substantial interest rate cut by the European Central Bank (ECB). Current market forecasts indicate a 75% likelihood that the ECB will initiate a rate-cutting cycle at the April 11th meeting, potentially driving the Deposit Facility rate down to 2.50% from its current 4% level by the year’s end.

Initial support for EUR/USD is identified at 1.0787, preceding a cluster of prior lows down to 1.0724. The currency pair is currently trading below the 200-day simple average, and if this trend persists, the support, as mentioned earlier, will likely face scrutiny.

As traders anticipate the latest Federal Reserve Monetary Policy decision, scheduled for release tomorrow, market participants are hopeful that Chair Powell will provide insights into the potential commencement of rate cuts. Financial markets are presently pricing in a 50/50 chance of a rate cut in March, with the May 1st meeting fully priced in.

Retail trader data from IG indicates that 55.69% of traders are net-long, with the long-to-short ratio at 1.26 to 1. The number of net-long traders has increased by 3.86% compared to yesterday and 16.12% higher than last week. In contrast, net-short traders rose by 0.63% since yesterday but decreased by 16.84% compared to the previous week.

EUR/USD Market Sentiment: MIXED

  • 56% of clients are net long.
  • Change in Longs: DAILY 3%, WEEKLY 8%
  • Change in Shorts: DAILY 4%, WEEKLY -4%
  • Open Interest: DAILY 3%, WEEKLY 2%

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