EUR/USD – Trading the German GDP

Can Germany continue carrying the Euro-zone forward? There have been some worrying signs coming out of the economic giant, making the release very important. Here are the details and 5 possible scenarios.

Background

All the Euro-zone countries are publishing GDP figures on Friday. The general picture is of shallow growth, with most countries hardly moving, and Germany pulling everybody forward. In Q2 2010, Germany posted an outstanding growth rate of 2.3% in the quarter. That’s around 9% annually, a pace which is very rare in Europe.

But since then, Germany is back to normal, with more normal, though rather strong growth rates. Expectations are for an expansion of 0.9% in the economy. This good rate is expected to carry the Euro-zone forward, as always.

Indeed, there are some good signs: Consumer confidence is solid, and industrial production is good as well. But there was one alarming sign, which was very bad: factory orders fell by 4% in March, and this is very worrying.

As an exporting nation, Germany is sensitive to the value of the Euro – a stronger euro makes its exports less competitive and lowers orders from factories.

For the whole region using the euro, a weaker Germany is very bad news. This is especially important as the policy of the ECB leans towards Germany. The rate hikes were meant to cool Germany’s heating economy. If Germany already cooled down, the next rate hike can wait for a long time, and this can weaken the Euro.

Technical levels and sentiment

The soft stance of Trichet on inflation and the escalation in the Greek crisis turned the tables on the Euro, and the sentiment is now bearish on EUR/USD.

Levels: 1.4650, 1.4580, 1.4520, 1.4450, 1.4375, 1.4282, 1.4160, 1.4030, 1.3950, 1.3860, 1.3750.

5 Scenarios

1. Within expectations: +0.8 to +0.9%: EUR/USD will shake and may fall, probably within range.
2. Above expectations: +1% to +1.2%: The pair rides, and has a small chance of breaking resistance.
3. Well above expectations: +1.3% This is quite unlikely, but if it happens, the euro will likely break one resistance level against the dollar.
4. Below expectations: +0.5% to +0.7%: EUR/USD falls, with a good chance of losing one technical level.
5. Well below expectations: Under +0.5%: Euro/Dollar falls with an excellent chance of breaking below support and even challenging another level. While there’s a low chance of this happening, it will be a game changer, that will rock the euro for a long time, especially if there’s no growth.