Euro steady despite German GDP decline

The euro has edged higher on Tuesday. In the European session, EUR/USD is trading at 1.0850, up 0.16%.

German GDP declines by 0.2%

Germany, the largest economy in the eurozone, continues to weigh on the bloc with its weak economy. Germany’s GDP declined by 0.3% q/q in the fourth quarter, matching the consensus estimate. Third-quarter GDP was revised upwards from -0.1% to 0.0%. On an annualized basis, German GDP fell -0.2%, just above an upwardly revised reading in Q3 of -0.3% and matching the consensus estimate of -0.2%. This means the economy entered a technical recession, with two consecutive quarters of negative growth, for the first time in two years.

Eurozone growth remained unimpressive in the fourth quarter. GDP came in at 0%, following a Q3 reading of -0.1% q/q which was also the consensus estimate. On a yearly basis, GDP eked out a 0.1% gain, creeping above the Q3 reading of 0% which was also the market consensus. The eurozone just managed to avoid a recession at the end of 2023, but with weak global demand and the crisis in the Middle East, the outlook for early 2024 does not appear favorable.

The US releases employment and consumer confidence data later in the day, with mixed readings expected. JOLTS Job Openings is expected to drop to 8.75 million, down from 8.79 million, while CB Consumer Confidence is projected to rise to 115 in January, up from 110.7 in December.

The Fed may be on the rate cut bandwagon, but the markets aren’t as feverish about a rate cut in March. Just one month ago, the odds of a March cut were at 73%, but that has plunged to 44%, according to CME’s FedWatch tool. The Fed meets tomorrow and it’s a given that it will hold rates for a fourth straight time. Investors will be on the hunt for clues about rate policy in the upcoming months. Will the rate statement and Jerome Powell’s presser provide some answers?

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EUR/USD Technical

• EUR/USD faces resistance at 1.0866 and 1.0920
• There is support at 1.0801 and 1.0747

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