Euro steady after mixed German data

The euro is down slightly on Friday. EUR/USD has been slowly moving lower and is down 1.1% this week.

German GDP misses estimate

The German economy, the biggest in the eurozone, underperformed in the fourth quarter of 2022. GDP declined by 0.4% in Q4 2022 q/q, below the 0.5% gain in Q3 and shy of the forecast of -0.2%. On an annualized basis, GDP slowed to 0.9%, down from 1.4% in Q3 and below the forecast of 1.1%. It was a rough end to 2022 for the German economy – the energy crisis, high inflation and the end of fuel subsidies all contributed to negative growth in the fourth quarter.

The German consumer spent less in Q4 compared to Q3, but the silver lining is that consumer confidence continues to rise. GfK Consumer Climate is estimated to have improved to -30.5 in March, up from -33.8 in February. Consumer confidence is still deep in negative territory but has now accelerated over five consecutive months.

The Federal Reserve remains in hawkish mode, as members continue to remind the markets that inflation is too high and more rate hikes are coming. The recent employment and retail sales reports helped convince the markets that the Fed means business, and investors are no longer talking about a ‘one and done’ rate hike in March with rate cuts before the end of the year. The markets appear to have bought into the ‘higher and longer’ stance that the Fed has been pushing, and expectations of a 0.50% hike in March have risen. According to CME’s FedWatch, the markets have currently priced the odds of a 25-basis point hike at 76% and a 50-bp increase at 24%. Earlier this week, the split was 83% for a 25-bp hike and 17% for a 50-bp rise.

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EUR/USD Technical

• 1.0604 is a weak resistance line. Above, there is resistance at 1.0704
• There is support at 1.0513 and 1.0413

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