EUR/USD: Trading the German Industrial Production January 2013

The  German Industrial  Production is an important indicator, and provides analysts and traders with a snapshot of the health of the  German manufacturing industry. A reading which is higher than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Wednesday at 11:00 GMT.

Indicator Background

German  Industrial Production measures the changes in output produced by manufacturers, utilities and mines.  Manufacturing is a critical sector of the economy, and strong readings are an indication of economic growth.

The indicator  looked very weak in December, declining by 2.6%.  This was well off the estimate of -0.4%. The markets are expecting a rebound in January, with a forecast of a 1.1% gain.  Will the indicator   bounce back into positive territory this month?

Sentiments and levels

The euro could not hold onto gains garnered following the  fiscal cliff deal, and the market focus now shifts  to Europe, where the situation is deteriorating  as we begin 2013.  PMIs  point to  an ongoing recession, retail sales aren’t improving and the debt crises are only on hold. On this background, Mario Draghi could certainly act, or at least hint on action and warn about the situation. With open ended QE in the US (where the economic situation is improving on many fronts) and a clear effort to weaken the yen in Japan, Draghi could also join the currency wars in one way or another. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3240, 1.3170, 1.3130, 1.3030, 1.30 and 1.2960.

5 Scenarios

1. Within expectations: 0.8% to 1.4%: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 1.5% to 1.8%: A strong reading can send the pair well above one resistance line.
3. Well above expectations: Above 1.8%: The likelihood of a sharp expansion in the manufacturing sector is low. Such an outcome would prop up the euro, and a second resistance line might be broken as a result.
4. Below expectations: 0.4% to 0.7%: A  weak reading  could cause the euro  to lose one level of support.
5. Well below expectations: Below 0.4%: A very poor reading could push  EUR/USD downwards, possibly breaking a second support level.

For more about the euro, see the EUR/USD forecast.