German GDP overview
German gross domestic product (GDP) due at 07:00 GMT is expected to show the economy expanded 0.1% quarter-on-quarter in the final three months of 2019, having registered a similar growth rate in the third quarter. The annualized growth rate, however, is seen decelerating to 0.2% from 1.0%.
Lead indicators point to weakness
Both Factory Orders and Industrial Production registered an annualized decline of 6.68% and 8.7%, respectively, in December, signaling a worsening of the recession in the manufacturing sector. Meanwhile, exports rose just 0.1% in December, missing the forecast for a 0.5% rise, after having dropped by 2.2% in November.
If the leading indicators are a guide, Germany’s export-driven economy may have contracted in the final quarter of 2019.
Impact on EUR/USD
EUR/USD is looking south, having breached key support at 1.0879 (Oct. 1 low) earlier this week. The pair hit a 34-month low of 1.0827 in Asia and is trading at 1.0831 at press time. The sentiment looks quite bearish as the current weekly candle is carrying little or no shadows similar to the last week’s big red “marubozu” candle.
So, the currency pair could easily slide below 1.08 if the German data prints below estimates, bolstering recession fears and forcing markets to price in higher odds of a European Central Bank (ECB) rate cut later this year.
Money markets are currently pricing about six basis points of rate cut by the end of 2020, versus a zero probability seen a month earlier, according to Bloomberg.
If the data betters estimates, a corrective bounce in EUR/USD may be seen, although the technical bias will remain bearish as long as the spot is holding below the descending 10-day average at 1.0940.