Europe has suffered deeply from the recession, and didn’t seem to be getting out of it soon. Today’s surprising GDP figures showed that the old continent’s largest economies have shown growth in the second quarter. EUR/USD made an initial small rise, but these surprising figures are very important for the markets.
Prelim GDP was leaked in France. Instead of publishing the figures 45 minutes after the German release, some Frenchman was very excited, and the word reached the world 8 minutes before the French release. There was a good reason to celebrate – French Prelim GDP grew by 0.3%, and didn’t contract by the same rate. This could be very partially explained by the downward revision of the first quarter – a drop of 1.3% instead of 1.2%.
Germany, Europe’s largest country and largest economy, was also a big surprise. The German economy grew by 0.3%, and beat expectations of a 0.2% contraction. What’s intriguing is that also the first quarter’s figure was revised upwards – a fall of 3.5% and not 3.8% as originally reported.
Flash GDP for the whole continent, usually less important due to its late release (after the two major economies), did show a contraction, but it was better than expected – only 0.1%.
Forex Markets Reaction
EUR/USD recovered from the blow it got after the FOMC Statement, and traded calmly at around 1.4220 before the release. The excellent GDP sent it up to 1.4270 quite fast, but now it’s back to 1.4240. All in all, the 50 pips jump isn’t huge. The initial reaction is quite mild.
But the early recovery of Europe is significant. Growth as early as the second quarter in the largest economies, while Britain and the US still contracted indicates that the Europeans have healthy and stable economies. This could mean a renewed long-term strengthening of EUR/USD, although it’s quite early to say – it’s only the initial preliminary reading.
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