Orbex Market Flash

Leading German Ifo Indicator Posts A Fifth Consecutive Monthly Drop

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The latest German data highlighted further weakness in the eurozone’s strongest economy. The Ifo index, a key leading indicator, printed its fifth consecutive monthly drop in January, falling to 99.1 from the prior 101 reading in December.

The breakdown of the data shows that the component sector was hit hard along with manufacturing, while the services sector was the least affected. A key driver behind the declines in manufacturing was the weakness seen in the auto industry.

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German Manufacturing Hit Hard

The manufacturing sector has been on a steady downward trend since summer 2018, taking the broader economy down in its wake.

While some of these negative pressures can be attributed to external issues, such as the ongoing uncertainty around US trade wars and the stumbling Brexit negotiations, Germany also appears to be experiencing negative pressure from a series of unique factors.

These include the delayed activation of new emissions thresholds or the low water levels which acted as a buffer, stopping the decline in oil prices from feeding through to consumers as we have seen elsewhere.

ECB Voices Concerns

The data comes on the back of the latest ECB meeting which saw Draghi highlighting the “persistence of uncertainties” threatening the eurozone economy and the recent trend of negative German data is the best example of this. For now, there is little to buoy sentiment towards EUR and traders will continue to track incoming data.

Technical Perspective

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EURGBP suffered its largest weekly drop since September 2017 last week. Price has now broken down through the rising trend line of the contracting triangle that has framed price action over the last two years.

However, a break of structural support at the .8620 will be needed to confirm a proper bearish reversal, opening the way for a test of deeper support at the .83 – .8350 region. Until .8620 is broken we could likely see a rotation higher as price continues to oscillate in the .8620 – .9099 range.

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