EU GDP and EUR analysis
- EU GDP growth rate was unchanged compared to Q2 (-0.1%) and remained stagnant compared to Q3 2022 (0%)
- EUR/USD is heading lower as the euro struggles to halt declines across the G7 currencies
- German CPI and US Nonfarm Payrolls data are scheduled to end the week on Friday
Growth turned negative in the third quarter compared to the second quarter, highlighting the deteriorating trajectory of the European economy. However, the year-on-year comparison managed to avoid contraction but was revised down from a weak 0.1% gain to close flat at 0%.
GDP of the European Union
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Stagnant growth begins in Europe
The chart below depicts the situation in Europe as global growth slows. Europe has seen rapid declines in the manufacturing sector – led by massive declines by European manufacturing giant, Germany – and dismal sentiment regarding the economic outlook that is only just starting to improve again.
Markets are now anticipating a greater likelihood that the European Central Bank will have to cut interest rates further next year, which has had a significant impact on the euro in the past two weeks. Inflation in Europe is showing significant progress, so much so that the Producer Price Index is currently negative (deflationary), and typically lags traditional measures of inflation such as the CPI by about 6 months.
EU GDP growth rate (annual)
Source: Refinitiv, prepared by Richard Snow
Immediate market reaction
The immediate reaction of the EUR/USD pair sent prices lower but only after they had risen before the data release.
EUR/USD 5-minute chart
Source: TradingView, prepared by Richard Snow
The daily chart shows a continuation of the bearish trend movement that has crossed below the 200 SMA and is now testing the 38.2% Fibonacci retracement of the late 2022 low. The pair may find temporary support ahead of German inflation data and non-farm payrolls report tomorrow. Lower German inflation could lead to a further decline in the Euro ahead of the non-farm payrolls report
Daily chart of EUR/USD
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @richardsnovics
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