Yesterday’s release of the European Central Bank’s Monthly Bulletin reported that the recovery in the global economy continued to proceed unevenly, while still gradually subjected to considerable fragility. Having moderated in Q2, weak global growth momentum appears to have continued into Q3, particularly in Europe. Global inflation has thus continued to ease in recent months, which was mainly in response to receding commodity prices in the first half of the year. As a result, the European currency dropped by 61 pips versus its American counterpart.
The Euro is perceived to persist to voyage along a bearish path seeing that new figures are fanning concerns that the Euro Zone debt crisis is driving its powerhouse economies, France and Germany, into recession. According to the French Central Bank, France is heading into recession, which adds fears that the Euro Zone debt crisis is causing the region’s strongest economies to follow their troubled southern neighbours into an economic downturn.
Similarly, official figures in Germany, the EU’s economic powerhouse, is deemed to reflect a plunge in both industrial production and exports in June. As a result, the data is anticipated to raise concerns that Germany too is succumbing to the crisis and will fall back into a recession.
The index tracking business confidence in France, which is the second biggest EU economy, showed that sentiment weakened for a fourth month. Consequently, the Banque de France now expects that France’s gross domestic product will shrink to 0.1 percent in Q3. This would mark a recession as it expects government figures to show the economy fell to 0.1 percent in Q2. Meanwhile, Germany’s prospects are seen as dependent on how much the US and China can compensate for deterioration in Europe, as well as the robustness of German domestic demand.
Hence, the outlook that suggests a slight slowdown in economic activity in the EU region for the coming months measures that a sell position be apt for the EURUSD pair in the day's exchanges.
Written for AlgosysFx Forex Trading Solutions