Forex trading – What the economic data is saying about the euro

Traders are already looking towards the European Central Bank (ECB) meeting in early June. Ahead of this, markets are eyeing a range of economic data that may help shape policy.

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Industrial production

 

The latest batch of industrial production figures from across the Eurozone were a mixed bag and point to slowing growth.

Germany industrial output declined 1.3% in March, well below par and the worst month for the nation’s factories since August 2014. Year-on-year production grew 0.3% in March, versus forecasts for 1.1% growth.

French industrial production also declined by 0.8% year-over-year, against estimates for a small rise in activity.

While Italy is showing signs of improvement, the figures are yet another sign of the struggles facing the 19-nation bloc.

The data for March comes after February saw the biggest contraction in Eurozone industrial production in 18 months.

GDP

 

The figures for industrial production may mean revisions to GDP figures for the first quarter. Initial estimates put growth in the bloc at 0.6% in the first quarter, ahead of the US (0.5%) and a punchy performance that raised a few eyebrows.

"Growth in Europe is holding up despite a more difficult global environment. There are signs that policy efforts are gradually delivering more jobs and supporting investment,” Pierre Moscovici, the EC’s economic chief, was able to say.

German GDP data on Friday, May 13th will be closely watched for any changes to the initial reading based on the weak industrial data.

According to its spring forecast, the European Commission expects euro area GDP of 1.6% in 2016, driven largely by domestic demand as exports suffer.

German current account and trade surplus

 

Germany is not on the US Treasury’s currency manipulator watch list for no reason – the country is running a gigantic trade surplus that’s hurting the rest of the bloc.

Latest figures show Germany’s burgeoning current account hit a record €30.4 billion in March.

The trade surplus is also huge – hitting €20.6bn in March as exports were worth €107bn versus imports of €80.9bn. Germany is also running a sizeable trade surplus with the rest of the Eurozone.

Little wonder, then, that ECB chief Mario Draghi has criticised Germany for its trade surplus driving down rates. The IMF also this week warned that Germany’s penchant for saving was hurting others, calling for a “more dynamic” economic model.

Inflation

 

The persistent problem for the ECB is the lack of inflation. Draghi is prepared to wait and see the effects of the latest round of easing policies announced in March, but he’s running out of time as prices are still failing to rise enough.

Consumer prices turned negative again in April, falling 0.2%. Prices were flat in March after slumping 0.2% the in previous month. Draghi is

The European Commission forecasts inflation will rise to 0.2% this year, down from its 1% estimate in November. Draghi believes inflation could turn negative for the year – if it does continue on this trend he may be tempted to press the button on even looser monetary policy.

The ECB’s next policy meeting is on June 2nd.