The increase in production of German industry in October was less than expected. While still showing a slight increase of 0.2%, it remains to half a percentage point below expectations of analysts. After the positive numbers last week supported the Euro, less positive numbers triggered losses today, since the weak investor confidence in the single currency continues.
Realism returns to the markets
After the euro in the past week greatly benefited from the ECB, which opens the monetary floodgates less than expected, the assessment of the euro among investors seems to be more realistic again. If the ECB QE measures and the subsequent development of the euro exchange rate be compared, it can be seen that the euro at least seems a bit overrated. Before the ECB meeting last Friday, the expectation of a possibly unlimited expansion of bond purchases was already considered in parts of the price of the euro, including the likely US interest rate hike. The pair EUR/USD was just under $ 1.06. Would the analysts' expectations have been met by the ECB, the rate would, according to estimates by Goldman Sachs, even drop down to 1.03 US dollars.
At the ECB press conference is now revealed that the expectations, at least in regards to the formulation of measures, were partly too high. In the consequence the euro increased against the US dollar by more than 3%. Also for the rest of the week there was no significant correction, which was certainly supported by positive economic data from the euro area. On sober reflection, must be firm found that the ECB has opened monetary floodgates, though has not (yet) unlimited, in a unprecedented scale and pumps another 360 billion euros in the market. However, the most important statement by ECB President Draghi covered the period after March 2017. After that, the ECB is ready, if it should be necessary to extend the bond purchase program in the required scope. In other words, the ECB is prepared to continue the program for the purchase of bonds and securities in an indefinite period of time. Only this is not decided so far, which resulted in the effects seen in the foreign exchange market.
Each figure from the euro area is important now
Today's development in the rate of the euro shows on the one hand that the development in the euro zone will be closely monitored, and, second, the nervousness of investors. The figures for German industrial production, are not among the most important data for the entire economy, but that the increase in of 0.2% in October remained by half a percentage behind the expectations of analysts, subsequently led to a loss of the euro of around 0.55% against the US dollar. This week not a lot of data from the euro area are expected. If the numbers will be below the expectations, the euro could move close to price of before the ECB meeting. If they meet the expectations, they will just support the current exchange rate.
