EURO (EUR/USD, EUR/GBP) NEWS AND ANALYSIS

• Bundesbank hints that German economy likely shrunk in Q3
• EUR/USD slide finds support despite a lack of clear bullish drivers
• EUR/GBP encounters resistance after bullish breakout

BUNDESBANK HINTS THAT GERMAN ECONOMY LIKELY SHRUNK IN Q3

Germany’s Bundesbank produced a monthly report pointing towards the likelihood of another quarterly contraction as industrial production and weakening consumption plagues Europe’s largest economy.

The report comes ahead of flash German and EU PMI data for October, which is expected to show very little progress, remaining at suppressed levels. The German manufacturing PMI data set – a sector that normally produces strong results - has led the rest of Europe lower.

Should a contraction be confirmed, it would result in fourth straight non-positive quarter. Negative GDP growth during Q4 2022 and Q1 2023 placed Germany into a technical recession, followed by a flat GDP growth in Q2.

German GDP Growth (QoQ)

Source: tradingeconomics

EUR/USD SLIDE FINDS SUPPORT DESPITE A LACK OF CLEAR BULLISH DRIVERS

The weekly EUR/USD chart reveals four prior weeks of consolidation after the impressive selloff that preceded it. The US dollar, despite seeing an uptick in fundamental data, is struggling to reignite prior momentum. US GDP is likely to show a stellar 4.1% expansion according to markets and recent data has shown a tendency to surprise to the upside (FNP, CPI, US retail sales).

In addition, US Treasury yields maintain elevated despite easing in recent sessions. This is in contrast with the EU where fundamental data continues to suffer. Nevertheless, EUR/USD appears to be experiencing a reprieve. The lack of clear bullish catalysts suggest that any advance may be short-lived, creating the potential for a return to range bound conditions, although, the range appears much tighter than before (1.0640 – 1.0520).

EUR/USD Weekly Chart

Source: TradingView, prepared by Richard Snow

The daily EUR/USD chart shows the period of consolidation in more granular detail. Current resistance appears via the May low of 1.0635, followed by 1.0700. The pair also trades well beneath the 200 simple moving average but the MACD indicator favors the recent bullish momentum.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/GBP ENCOUNTERS RESISTANCE AFTER BULLISH BREAKOUT

EUR/GBP has revealed a conclusive move higher, breaking above the prior long-term range between 0.8515 and 0.8660. The move above 0.8700 appears to be losing steam the last two days reveal extended upper wicks – often a sign of bullish fatigue. Prices may test the 200 SMA which is well within reach.

UK unemployment data could help the pair resume the bullish advance as the data has been easing in recent months. UK unemployment is rising at a steady rate, something the Bank of England will be welcoming as UK wage growth accelerated at a slower rate over August.

EUR/GBP Daily Chart

Source: TradingView, prepared by Richard Snow

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