Germany’s economic prospects took a dramatic shift on Tuesday with a deepening slump in confidence for the eurozone’s largest economy.
EURJPY – Daily Chart
The EURJPY exchange rate has tumbled from the July highs of 175 and now trades at 156.71. The last two days have been a weak bounce and could lead to further lows. Support comes in below 153.88 and that is creating a breakout zone for further tests of support.
Germany’s ZEW Economic Sentiment Index, a key measure of economic sentiment among financial experts, dropped sharply from 19.2 points in August to just 3.6 points in September, well below analysts’ forecasts of 17 points. That was the lowest level since October 2023.
The sub-index measuring current conditions also fell sharply to -84.5 points, down from -77.3 points in August and below expectations of -80 points. It is the weakest reading since May 2020.
“The hope for a swift improvement in the economic situation is visibly fading,” ZEW President Achim Wambach said.
Expectations for the coming six months have worsened across many industries, with the steepest declines seen in mechanical engineering, steel, automotive, and banking. Construction, utilities, and telecommunications sectors experienced a more optimistic outlook.
The weakness in Germany’s economy also affected the broader eurozone, where the ZEW sentiment index dropped from 17.9 points to 9.3 points in September, with expectations for 16.3 points and also its lowest in nearly a year.
“Although the falling economic expectations for the eurozone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater. Most respondents appear to have already factored the interest rate decision into their expectations,” added Wambach.
On Monday, European Central Bank (ECB) Governing Council member, Peter Kazimir, dismissed hopes for a consecutive interest rate cut in October, suggesting that December would be a more likely opportunity. That helped to boost the EURJPY despite the economic warning.
“It would require a significant shift, a powerful signal, concerning the outlook to consider backing another cut in October,” Kazimir said.
The EURJPY has tumbled from the previous highs and the lower levels look more likely before any recovery.
