Germany, Eurozone’s manufacturing powerhouse, will publish Industrial Production data for December at 07:00 GMT.
The output is forecasted to have contracted by 0.2% month-on-month, having risen by 1.1% in the previous month. The annualized figure is expected to come in at -4% compared to -2.6% in November.
Big beat on expectations unlikely
German manufacturing recession worsened in December with Factory Orders falling by 2.1% month-on-month versus expectations for a 0.6% increase. On an annualized basis, Factory Orders fell 8.7% versus expectations of an 8% drop. Notably, order books plunged at their fastest level in more than a decade.
IHS Markit’s German Purchasing Managers’ Index (PMI) for manufacturing fell to 43.7 in December from November’s five-month high of 44.1, signaling a deeper contraction.
So, the probability of Industrial Production surprising on the higher side is quite low.
Impact on EUR/USD
The single currency defended the support at 1.0964, the 76.4% Fibonacci retracement of the rally from 1.0879 to 1.1240, on Thursday, but so far, the bounce has been capped above 1.0980.
The hourly chart is reporting a bullish divergence of the relative strength index. Hence, a test of 1.10 cannot be ruled out. A stronger bounce, if any, will likely be reversed if the German Industrial Production prints below-forecasts.
A positive surprise may strengthen the bid tone around the single currency, although the outlook will remain bearish as long as the pair is holding below the lower high of 1.1014 created on Feb. 6.
The pair may also take cues from the German Trade Balance data scheduled for release at 07:00 GMT. During the North American session, the focus will be on the US Nonfarm Payrolls report for January.