Germany is the largest economy in Europe, with a GDP of more than $3.4 trillion. The country’s GDP is 21% of the entire GDP of the European Union. It is closely followed by the United Kingdom and France whose GDP are equal to 15% and 11% of the EU respectively. Therefore, it is easy to see why the performance of the German economy is so important to the movements of the euro.
Yesterday, data from the Federal Statistics Office showed that the industrial goods orders declined by 4.0%. This was a sharp decline from a month before and was the lowest level since July 2017. The biggest slump on Made in Germany goods came from outside the Eurozone, which is a reflection of the ongoing trade tussles between the US and Germany.
Today, the sad news continued with the release of industrial production data. In June, the industrial production slumped by negative 0.9%. This was a sharp decline from a gain of 2.4% in May and the negative 0.5% which traders were expecting. In addition to this, the country’s exports remained flat in June while exports rose by 1.2%. On an annualized basis, imports and exports rose by 10.2% and 7.8% respectively.
A potentially good sign for the Euro is that the US and the EU are now in negotiations on how to deal with the issue of trade. Last week, Donald Trump and Jean Claude Juncker issued a détente that pauses all the tariffs.
For Germany, tariffs on industrial goods to the United States would have been disastrous. In 2016, automobiles, machinery, and chemical goods accounted for 19%, 14%, and 9% of all exports. Therefore, tariffs would have had major implications for the economy.
This factor is probably the reason why traders are buying the Euro this morning. After huge declines yesterday, the EUR/USD pair has reached 1.1582. This price is in line with the 21-day moving average and is above a key resistance level as shown below. There is a likelihood that today’s movement is a false breakout, which means that the lower movements on the EUR/USD pair is likely to continue.