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EURUSD Lower as German Economy Enters a Recession

EURUSD has dropped through support after a disappointing GDP growth print from Germany.

EURUSD – Daily Chart

EURUSD – Daily Chart

Support at the 1.076 level has given way with a -0.25% drop on Wednesday. There is room to head for support at the 1.0525 level.

The German economy entered a recession in early 2023 after household spending took a hit from the pressure of high inflation. According to a second estimate from the statistics office on Thursday, GDP fell by 0.3% in the year's first quarter. That followed a decline of 0.5% in the fourth quarter of 2022. 

The latest data showed "surprisingly negative signals," Finance Minister Christian Lindner said on Thursday. He added that the German economy needed to gain ground with other highly developed economies. 

"I don't want Germany to play in a league in which we have to relegate ourselves to the last positions," he said. He was referring to forecasts from the International Monetary Fund, which forecast a recession in 2023 only in Germany and Britain. However, Britain's outlook has since been upgraded despite stubborn inflation.

"Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him," Andreas Scheuerle from DekaBank, said. 

"Looking ahead, we doubt that GDP will continue to fall in coming quarters, but we see no strong recovery either," Claus Vistesen from Pantheon Macroeconomics said.

"We think consumers' spending is now rebounding as inflation eases, and the 4.9% crash in government spending will mean-revert too. By contrast, we think investment is now falling, as higher interest rates and tightening credit standards bite, and the surge in net exports also is petering out," he added. 

EURUSD could drop further as the German outlook stutters, and traders should watch the US debt ceiling negotiations.

Last Updated: 26/05/2023

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