The latest wave of German data showed that businesses in the Eurozone’s biggest economy are as yet, relatively unphased by the ongoing trade tensions between the US and China.
Ifo Down By Not Much
The Ifo index, Germany’s most important leading indicator, was only down slightly in September, falling to 103.7 from August’s revised 103.9. Although both the expectation and current assessment components weakened, the total level of all elements highlights continued the strong momentum in the economy for the coming months. One key reason for this is likely the effect of the late-summer meeting between EC president Jean-Claude Juncker and President Trump, at the end of which both presidents declared their intention to work together to dismantle trade barriers between the EU and the US.
German Manufacturing Edges Lower
Amidst solid economic fundamentals and positive headline Ifo reading, German manufacturing has moved lower, though the shift has been almost unnoticed. Indeed, while a build-up in inventory over recent months along with less new orders isn’t a good omen for industrial production, there is no reason, as yet, to be truly worried especially while the fundamental picture remains so supportive; low interest rates, a weak Euro and corporate sector credit growth at its highest level since 2009.
Market Dealing With Fresh Risks
For now, though, the sensitivity of the market’s reaction to data releases looks set to continue due to two factors, the first being the maturing cycle in Germany and secondly, the disparity between external and domestic political risks and healthy economic fundamentals and strong domestic demand. To summarize, while the prospect of a trade war is not especially new, the potential for the government to collapse is.
EURUSD is currently breaking out in favor of the large monthly bullish pin bar that printed last month. If this breakout continues, the bearish trend line from 2007 highs will be the crucial first focus point with the 2018 high of 1.2559 coming above.