EURUSD: German Economy Shrinks by Record in Q2

Summary:

EURUSD was lower after the market reacted to a record drop in German GDP for the second quarter due to the effects of the lockdowns.

EURUSD was lower after the market reacted to a record drop in German GDP for the second quarter. Due to the impact of the virus lockdowns on the economy, the GDP, which is a measure of goods and services produced by a country fell 9.7% for the three months to June.

The number actually came in slightly better than the -10.1% contraction that economists had expected, but it comes after a disappointing PMI release last week and was enough to see selling in the Euro this morning. Within the number, household consumption was down by 10.9% and capital formation in machinery and equipment was down 19.6%. The only growth was in government expenditure, which was able to prevent an even larger overall figure.

Another economic release is due for the German economy at 10am CET this morning with the latest IFO Business Climate Index. The closely-watched survey is a measure of the sentiment of 9,000 firms about the current business situation and the outlook for the next six months. Analysts are expecting a figure of 92.2 after last month’s 90.2 beat expectations.

EURUSD fell around 25 pips after the GDP release but has completely reversed that trend in the last half hour. Drawing Fibonacci levels from Friday’s low to yesterday’s high show that the 61.8% levels held as support for yesterday’s low. Today’s dip has reversed from the 50% level, hinting that a move higher to test yesterday’s 1.1850 high is possible. The IFO release will be key and if the number disappoints then a move back to 1.1800 would likely see the pair for 1.1760.