Euro calm despite soft German data

The euro is showing limited movement on Tuesday. In the North American session, EUR/USD is trading at 1.1179 at the time of writing, up 0.16% on the day. The euro has been on a tear against the wobbly US dollar, jumping 3.1% in August.

German consumer climate worsens

The German consumer remains deeply pessimistic about economic conditions in the eurozone’s largest economy. The GfK consumer climate index dropped to -22.0 for September, down from a revised -18.6 in August and shy of the market estimate of -18.0. This was the lowest reading since May and soft consumer sentiment does not bode well for a sustainable economic recovery.

Germany’s economy contracted by 0.1% q/q in the second quarter of 2024, which confirmed that initial estimate. This was down from the modest 0.2% gain in Q1. Annually, the economy showed no growth, compared to a 0.1% contraction in the first quarter. This means that the economy narrowly avoided a technical recession, which is defined as two consecutive quarters of negative growth.

The Jackson Hole Symposium was significant in that Federal Reserve Chair Powell signaled that interest rate cuts are coming. Powell said in his hotly-anticipated speech that the time had come to cut rates and the US dollar responded with broad losses. The euro rose 0.7% on Friday, capping off an excellent week with gains of 1.5%.

The most likely scenario is a 25-basis point cut from the Fed at the Sept. 18 meeting but nothing is certain. The US releases the August employment report on Sept. 6 and if the data is soft, as was the case in the July release, expectations will rise for a half-point cut.
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EUR/USD Technical

• EUR/USD is testing resistance at 1.1171. Above, there is resistance at 1.1192
• 1.1140 and 1.1129 are the next support levels

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