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  • EUR/USD is lacking a clear directional bias ahead of the German trade data.
  • Weaker-than-expected German imports may hurt the EUR.
  • The downside could be limited as prominent analysts believe an impending dovish response by the ECB has been priced in.

EUR/USD is sidelined around the 10-day moving average (MA) of 1.1027, having failed to close above that MA line in the last two trading days.

The German data due at 06:00GMT is expected to show the exports or outbound shipments dropped 0.5% month-on-month in July, following a 0.1% decline in June. Meanwhile, imports or inbound shipments are seen contracting 0.3% in July, having risen by 0.5% in June.

Germany’s Trade Balance s.a. (Jul) is forecasted to drop to €17.5B from €18.1B.

A drop in exports wouldn’t be a surprise. After all, Germany’s manufacturing Purchasing Managers’ Index (PMI) had dropped to a seven-year low in July, primarily due to the steepest drop in export orders since 2009.

The EUR, however, may come under pressure if the German imports drop more than expected aggravating worries of a deeper slowdown in the Eurozone’s manufacturing powerhouse. Weak imports would mean a broader consumption slowdown.

Note that the European Central Bank is expected to cut rates and announce another round of  bond-buying  on Thursday. The dovish expectations would only strengthen with a weak German data if any.

That said, the analysts at Goldman Sachs believe there is little downside in the EUR around the ECB rate decision and have reportedly squared off a short position in the EUR/JPY pair.

Put simply, the markets may have done pricing a dovish ECB and the losses due to dismal German data could be muted.

Technical levels