German Factory Orders overview
German Factory Orders are seen plunging 19.7% month-on-month in April, having slumped 15.6 in March. On an annualized basis, the industrial orders fell by 7.4% in April. The data will be released at 06:00 GMT.
Bearish lead indicator
IHS Markit’s German Purchasing Managers’ Index (PMI) for Manufacturing, which accounts for about a fifth of the economy, was revised downwards to 36.6 in May from the preliminary reading of 36.8, despite it improving slightly from April’s 34.5.
The manufacturing sector in Germany continued to contract last month amid weakening demand due to the coronavirus pandemic, although the pace of slowdown declined.
“Manufacturing production was already down 7-8% from a peak in late 2017 even before the onset of the pandemic, and now that figure looks to be in the region of 25-30%,” IHS Markit reported.
Impact on the EUR
EUR/USD holds steady around 1.1335 ahead of the German data release, consolidating the previous surge to a new three-month high of 1.1362.
Despite the expectations of a sharper slump in the Factory Orders, in light of the bearish lead indicator, the bullish sentiment around the shared currency shows little sign of abating.
Investors continue to cheer the bigger-than-expected pandemic emergency purchase programme (PEPP) announced by the European Central Bank (ECB) on Thursday to boost the economic recovery. The ECB expanded PEPP by EUR600 billion.
On a bigger-than-expected fall in the German Factory Orders, EUR/USD could reverse course and drop back below 1.1300. Should the greenback pick up bids on a deteriorating market mood, the main currency pair could extend the correction towards 1.1243 (5-DMA).
A positive surprise could offer fresh legs to the spot’s upside, driving the pair to retest the multi-month tops of 1.1362, above which the 1.1400 level could come into play.
About German Factory Orders
The Factory orders released by the Deutsche Bundesbank is an indicator that includes shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the German economy and could be an inflationary factor. It is worth noting that the German Factory barely influences, either positively or negatively, the total Eurozone GDP. A high reading is positive (or bullish) for the EUR, while a low reading is negative.