Gauging Growth: German PMI and the Path Forward for EUR/USD

Explore German PMI impact on EUR/USD and navigate the path ahead for growth—insightful economic trends analysis.

EURO ANALYSIS

Surprisingly, the German manufacturing and services sectors have shown an uptick, providing a positive deviation from previous expectations. The preliminary data for German manufacturing PMI reveals a figure of 42.3, surpassing the consensus estimate of 41.2. Similarly, the services sector outperforms, registering a value of 48.7 against the anticipated 48.5.

While this improvement may not be a game-changer for Germany’s economic outlook, it suggests a milder GDP contraction for Q4. The prospect of a return to growth, with readings above the pivotal 50 mark for the composite data point, could materialize in the coming year’s second half. However, it’s crucial to note that overall growth remains tepid. Remarkably, Germany managed to sidestep a technical recession in 2023, as earlier quarterly GDP prints indicated either stagnant or negative growth.

Gauging Growth: German PMI and the Path Forward for EUR/USD

MARKET REACTION

Immediately following the release of this data, the EUR/USD chart exhibits an upward spike, only to retrace to levels observed just before the announcement. This pattern reflects the initial market enthusiasm, giving way to a more measured response.

In the broader context, EUR/USD has been on an upward trajectory, benefitting from a weakening USD. Currently trading above the 200 SMA, the pair encounters resistance around the 1.0929 level—a crucial consideration for longer-term trends. If the euro fails to sustain its bullish momentum, a test at the 1.0831 level is possible.

Looking ahead, the economic calendar for the week appears light, indicating a potential decrease in market volatility. The focus remains on the FOMC minutes scheduled for Wednesday and speeches from central bank representatives on both sides of the Atlantic. These events could serve as the next significant catalysts shaping the direction of the EUR/USD pair in the short term.

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