EUR/USD pares losses after strong Germany GDP data

EUR/USD pares losses after strong Germany GDP data
Written by:
Crispus Nyaga
November 24, 2020
  • The EUR/USD pair rose today after the strong Germany GDP data.
  • The German GDP expanded by 8.5% in the third quarter, beating estimates of 8.2%.
  • The weaker US dollar has also contributed to today's price action.

The EUR/USD price bounced back today as investors in forex reacted to the overall positive economic data from Germany. The weaker dollar also contributed to euro’s weakness. It is trading at 1.1875, which is 0.65% higher than yesterday’s low of 1.1800.

EUR/USD bounces back after strong German GDP data

Germany economy bounced back in Q3

Germany is the biggest economy in Europe with a combined GDP of more than $3.9 trillion. In a report earlier today, the country’s statistics office said that the economy bounced back by 8.5% in the third quarter after contracting by 9.7% in the previous month. Economists polled by Reuters were expecting the economy to rise by 8.2%.

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Still, because of the pandemic, the economy is yet to go back to pre-pandemic levels. Indeed, it dropped by 3.9% in the third quarter compared to the same quarter in 2019. That decline was better than the expected contraction of 4.1%.

According to the bureau, most sectors of the economy did well in the third quarter as the country reopened. Private consumption rose by 10.8% while government consumption increased by just 0.8%. Gross capital investments in construction rose by 16% while in construction fell by 2.0% as companies prioritised cash savings. Exports rose by 18.1% while imports rose by 9.1%.

Germany business confidence falls

The EUR/USD also reacted to the business confidence data by the ifo Institute. The business climate index fell to 90.7 in November from 92.5 in October because companies are worried about the next 6 months. The current assessment and business expectations also fell to 90.0 and 91.5, respectively. These numbers, coupled with the recent shutdowns, signal that the country’s economy will contract in the third quarter.

The weaker dollar has also contributed to the price action on the EUR/USD pair. The dollar index is down by 0.25% today, mostly because of the recent progress on vaccines. Analysts are now watching the upcoming votes by the Food and Drug Administration (FDA) on the Moderna, Pfizer, and AstraZeneca vaccines. If accepted, the companies will start mass production of the vaccines.

Meanwhile, reduced political pressure in the United States has also led to a risk-on sentiment on the dollar. In a statement yesterday, Donald Trump asked his administration officials to coordinate with Joe Biden, the incoming president. In a statement to Bloomberg, Jeff Halley of Oanda said:

“Markets love certainty and the move by Trump overnight partially removes ambiguity over the presidential succession.”

EUR/USD technical outlook

EUR/USD technical chart

On the daily chart, the EUR/USD price rose to an intraday high of 1.1880. The price is between the middle and upper lines of the Bollinger bands. The Relative Strength Index (RSI) is at the neutral level of 57. Notably, the price is a few pips below the important resistance level of 1.1918. Therefore, it appears to be setting up for a bullish breakout in the next few days. If this happens, the next resistance level to watch will be 1.200.