EURUSD – Euro edges lower as German economy contracts

EUR/USD has reversed directions on Wednesday and posted slight losses. In the European session, the pair is trading at 1.1275, down 0.13% on the day. On the release front, German Preliminary GDP in the third quarter declined 0.2%, missing the estimate of -0.1%. Eurozone GDP dipped to 0.2%, matching the estimate. In the U.S., the focus is on consumer inflation numbers. CPI and Core CPI are both expected to rise in October, with estimates of 0.2% and 0.3%, respectively. On Thursday, the eurozone releases trade balance, while the U.S. will publish retail sales, the Philly Fed Manufacturing Index and unemployment claims.

There is consternation in the markets, as the German economy contracted in Q3 for the first time since Q1 of 2015. German officials tried to put a brave spin on the numbers. Economic Minister Peter Altmaier said that a 0.2% decline “isn’t a catastrophe” and that the economy would rebound in the fourth quarter. The ministry blamed the contraction on weakness in the auto sector due to new pollution standards. However, the well-respected ZEW research institute did not share this enthusiasm, saying on Tuesday that investors did not expect a rapid recovery from the current weakness. German ZEW Economic Sentiment posted a second straight soft release, with a reading of -24.1 points. This points to deep pessimism on the part of institutional investors and analysts.

The standoff between Italy and the EU over Italy’s budget continues to weigh on the markets. Italy ignored the EU Commission deadline of midnight Tuesday, refusing to revise its budget. The government said it would stick to its deficit target of 2.4% and a growth forecast of 1.5%, which the EU argues breaches its fiscal rules. With the ball in the EU court, what happens next? The EU could respond with financial sanctions worth billions. The markets have already responded on Wednesday with a thumbs-down, as Italian bonds have climbed sharply and the Milan stock exchange is down one percent.

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There’s significant risk ahead.

EUR/USD Fundamentals

• 2:00 German Preliminary GDP. Estimate -0.1%. Actual -0.2%

• 2:45 French Final CPI. Estimate 0.1%. Actual 0.1%

• 5:00 Eurozone Flash GDP. Estimate 0.2%. Actual 0.2%

• 5:00 Eurozone Industrial Production. Estimate -0.4%. Actual -0.3%

• Tentative – German 30-year Bond Auction

• 8:30 US CPI. Estimate 0.3%

• 8:30 US Core CPI. Estimate 0.2%

• 10:00 US FOMC Member Quarles Speaks

• 18:00 US Fed Chair Powell Speaks

• 5:00 Eurozone Trade Balance. Estimate 16.7B

• 8:30 US Core Retail Sales. Estimate 0.5%

• 8:30 US Retail Sales. Estimate 0.6%

• 8:30 US Philly Fed Manufacturing Index. Estimate 20.7

• 8:30 US Unemployment Claims. Estimate 216K

• 11:30 US Fed Chair Powell Speaks

Open: 1.1290 High: 1.1320 Low: 1.1264 Close: 1.1275

EUR/USD Technical

EUR/USD edged higher in the Asian session but has reversed directions and lost ground in European trade

• 1.1212 is providing support

• 1.1300 is the next resistance line

• Current range: 1.1212 to 1.1300

Further levels in both directions:

• Below: 1.1212, 1.1120 and 1.0992

• Above: 1.1300, 1.1434, 1.1553 and 1.1685