German Factory Orders Are a Bitter Disappointment – No

Just before the rate decision, we get bad news from Europe’s powerhouse – German factory orders plunged by 4% in March. A rise of 0.4% was expected, so this is well below expectations. With the locomotive slowing down, maybe the rates can remain lower for longer, allowing the Euro-zone to grow faster? The Euro slips, but remains in range.

The rise of the previous month (data for February) was revised to the downside – only 1.9% instead of 2.4%.

Germany is not only the biggest economy in the Euro-zone, but also a very successful one. The unemployment rate is only 7.1% and dropping, the trade balance surplus is high and prices are rising.

Many in Europe blame the ECB, based in Frankfurt, of being too German-centric, responding to a heating German economy and disregarding the contraction or very fragile growth in other countries.  

The president of the ECB is frequently asked if he ignores the small countries, and he answers with denial and reminds everyone about the mandate of the ECB – keeping price stability.

But now, also the biggest economy is seeing a first sign of slowdown. Will this big disappointment push the rate hike further ahead in the year? No hike is expected now, but many think that Trichet will signal one in June, using the code words “strong vigilance”. We’ll soon know. There are also economists that see another hike just now, although the probability is very low.

EUR/USD took a hit from these bad news, but remains in the 1.4775 – 1.4882 range awaiting Trichet. For more levels and analysis, see the EUR/USD Forecast.