German Factory Orders and the ZEW economic sentiment unexpectedly declined. The worse-than-expected German data triggered a sharp move lower in the euro pairs, one day before the FOMC minutes.
Yesterday marked the first day in a while since German economic data was disappointing. Both factory orders and the ZEW indicator of economic sentiment declined in Germany, triggering a sharp move lower on the common currency.
As the German economy is the largest in the Euro area, the implications for the economic bloc are not positive. Therefore, the decline in the euro is seen as a concern, and it justifies the ECB’s dovish stance.
German Factory Orders and ZEW Indicator of Economic Sentiment Declined
Factory orders show the new purchase orders placed with manufacturers. The market expected the orders to rise by 0.9%, but in fact, they declined sharply, down 3.7%, the lowest since July last year.
Concerns are growing that German economic growth is stalling because factory orders are a leading indicator of production. The sharp decline raises some serious questions about the strength of the country’s economic recovery.
Bad data became even worse when the ZEW survey came out later in the trading day. The ZEW indicator of economic sentiment in Germany declined to 61.2 on expectations of 79.
The ZEW survey is also a leading indicator of economic health, and the decline shows that optimism is faltering in Germany. The market reacted immediately, sending the euro pairs lower.
Euro Pairs Sharply Lower on Poor German Data
Up to the point at which the German data was released, the euro pairs traded with a bid tone. The EUR/USD, in particular, looked strong, trading close to the 1.19 level. Also, the EUR/JPY looked ready to regain the 132 area.
But the poor German data abruptly changed the sentiment. Both the EUR/USD and the EUR/JPY lost about one hundred pips, as investors updated their expectations for the common currency.
Moving forward, the market participants will scrutinise future data out of Europe in order to see if this is just an isolated event or something else. If poor data continues, the common currency will have a hard time recovering from the lows.