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German data scheduled for release at 06:00 today are expected to show the industrial production in the Eurozone’s biggest economy contracted 0.5% month-on-month in March following a 0.7% expansion in February.

In annualized terms, the industrial production is seen contracting 2.8% in March, having dropped 0.4% in the preceding month.

Lead indicators point to weak data

Germany’s manufacturing PMI’s had sunk deeper into contraction territory in February and March. Notably, the level of new business from abroad in February had dropped by most since October 2012. Further, new orders had contracted for the sixth straight month in March.

While new factory orders rose 0.6% in March from the previous month, the rebound from February’s 4% decline was weaker-than-expected.

With lead indicators pointing to a deeper manufacturing sector slowdown in the first quarter, the probability of March industrial production missing estimates is high.

Impact on EUR/USD

EUR/USD created a bullish engulfing candle on Friday, neutralizing the immediate bearish setup. So far, however, the follow-through has been anything but bullish with the pair consistently failing to find acceptance above Friday’s high of 1.1204.

That could change today if the Geman industrial production blows past expectations. The outlook would turn bullish if the spot manages to beat the resistance of the trendline connecting March 20 and April 17 highs.

Also, the EUR may show resilience in the face of weak data. After all, German slowdown is not a news anymore and seems to have been priced in by markets.  

About German industrial production

The Industrial Production released by the  Statistisches Bundesamt Deutschland  measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).