Euro drifting after weak German data

The euro continues to have an uneventful week. EUR/USD is up down 0.06%, trading at 1.0748 in the North American session at the time of trading.

German industrial production declines

It has been a mixed week for German data. German industrial production declined by 0.4% m/m in March after a revised gain of 1.7% in February and above the market estimate of 0.6%. Manufacturing production fell by 0.4%. This release comes a day after German factory orders fell by 0.4% after a decline of 0.8% in February and shy of the market estimate of 0.4%.

While manufacturing remains in the doldrums, business activity in the services sector is showing improvement and most importantly, growth (the 50 level separates growth from contraction). The German services PMI rose to 53.2 in April, its highest level since June 2023. This was higher than the March reading of 50.1 and just shy of the market estimate of 53.3. The composite PMI, which comprises service and manufacturing, rose from 47.7 to 50.6 in April, the first month of growth since June 2023. The gains were driven by services, as manufacturing remains mired in deep decline.

The European Central Bank is poised to lower interest rates in June, which would mark the first rate cut since March 2016. The ECB is ready for the shift in policy after a steep rate-tightening cycle, which slashed inflation from 11.5% in October 2022 to 2.4% in March. This is still above the ECB’s inflation target of 2% but the ECB is under pressure to provide relief to households and businesses which have been hit hard by elevated rates.

ECB policy makers remain wary that inflation could rebound if they take their foot off the rate pedal and have yet to signal any plans for additional rate cuts after June. The ECB’s rate path in the second half of the year will depend on the data, especially inflation.

EUR/USD Technical

• EUR/USD faces resistance at 1.0764 and 1.0779
• 1.0739 is under pressure as a support level. Below, there is support at 1.0724

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