Euro Falls Sharply As Germany’s Sentiment and Forecast Deteriorate

After noticeably poorer than predicted German sentiment, the euro has fallen sharply today. Germany’s growth would be much weaker in the fourth quarter, according to the Bundesbank. The second-weakest country is Switzerland. Following a surge in key global treasury yields, the yen is likewise weak. The Australian dollar, on the other hand, is the strongest currency today, followed by the US dollar.

The Bundesbank stated in its monthly report that Germany’s inflation “continues to rise before it gradually declines in the coming year”. Industrial product prices continue to rise. The increase in energy prices is mainly due to rising oil prices. “On the other hand, the sharp increase in natural gas spot market prices may only have an impact on consumer prices after the end of the year.”

As the euro falls, the economy is expected to “grow significantly slower” in the fourth quarter. The strong momentum of the service industry also “may be significantly weakened.” The manufacturing industry is likely to continue to be plagued by delivery issues. Output may remain below the pre-crisis level in the last quarter of 2019. For 2021, GDP growth may be much lower than Bundesbank’s June forecast.

Euro Drops Sharply Today but Stays Above 1.1571

Germany’s Ifo business climate index dropped slightly to 97.7 from 98.8 in October, which was lower than the expected 97.8. The current assessment has dropped from 100.4 to 100.1, which is higher than the expected 99.3. The expectation index fell from 97.3 to 95.4, which was lower than the expected 96.1.

Today, the euro falls dramatically, although it remains above the 1.1571 minor support level. At this time, intraday bias is neutral. A break of 1.1668 will target the 55-day EMA on the upside (now at 1.1705).

By sector, the manufacturing index fell from 20.0 to 17.2. Service dropped from 191 to 16.5. Trade dropped significantly from 9.0 to 3.7. The construction industry rose from 11.1 to 12.9.

Ifo said: “Supply issues are causing headaches for companies. Manufacturing capacity utilization is declining. The sand on the wheels of the German economy is hindering recovery.”

Pablo Hernandez de Cos, a member of the Euro Central Bank Management Committee, warned that supply chain issues and rising raw material prices hurt the pace of economic recovery.