3 Reasons Why Impressing Growth Fails to Cheer EUR/USD
European GDP numbers were released today. Germany led the Euro-zone growth with a whopping 2.2%, and also the overall number was excellent – 1%, much better than expected. But the gains in EUR/USD are very limited. Why? Here are three answers.
Apart from German growth, 0.9% more than expected, best since the reunification, France also exceeded expectations, and the weak economies of Spain and Romania also showed positive growth rates. The initial figures for Q2 were definitely great, no matter how you look at them. But EUR/USD is still trading at around 1.2860. It climbed to 1.2915 but went back down to the same levels as before the release. Let’s see why:
- Austerity measures to slow growth: In Q2, many governments in Europe adopted severed budget cuts. The impact of these cuts is still to be seen, and it’s expected to damage growth. The Greek economy shows us how austerity measures slow the economy.
- Europe enjoying weak Euro: The common currency fell from a peak of 1.5144 in December 2009 to 1.1876 in June 2010. The weak Euro, also in its crosses against other currencies, helped European exports, especially export-oriented Germany. A weaker Euro is in the interest of European governments. While intervention is unlikely, any rise in the currency will hurt the economies, and will be followed by a drop of the currency.
- Gloomy market mood: The statement from the Federal Reserve, that was analyzed as a great concern from a double dip recession in the US, is worrying for Europe. The US is usually the economic locomotive of the world. A new recession in the US means trouble elsewhere. And when there’s trouble all over – the US dollar benefits. So does the yen.
In recent days, we’ve seen how risk aversion plays a big role in trading – bad US figures mean a stronger dollar. If genuinely excellent numbers from Europe fail to lift the Euro, it seems that the Euro was rising only to resume falling.
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Hi,
I see your reasoning. However, I feel that the reasons you are giving are long term, and I expected a short term increase in EUR. I understand that the reasons you are giving should be already discounted on the price, as it is nothing new. However, the increase in GPD was unexpected, so i understand there would be a more positive reaction in favor of Eur.
Please can you comment on my opinion. At the end of the day, the market agreed that the better than expected GDP was not good enough…
I am trading to EUR go up after this small correction, bought at 1.2837 already… i am in positve at 10h50 but slightly…
Thanks,
Jordi
Just adding my 2 cents here – global risk aversion where higher yielding currencies take the hit – key technical trendline breaks….the daily trend has indeed shifted and these massive breaks do nothing more than throw gasoline on a candle. World equity indices down heavily the past 2 days and no doubt this extreme stretch on relatively slow recovery and mediocre fundamentals adding stimulus. People are playing ‘catch up’ in terms of reality.
Thanks for your comments and sorry for my late response. Jordi, I believe that the very pessimistic mood that took over the markets prevented the Euro from even making short term gains. Also on Friday, the wait for the US figures (retail sales and CPI) limited wild moves. Further falls came indeed towards the end of the day.
Sean, indeed the markets are playing “catch up” with the reality – which isn’t good…
Nice Talks……..