EUR/USD tumbled further on Friday, driving the euro to a 1.0930 low. Although the EU confirmed their GDP data most of the selling was spillover from robust EUR/JPY selling. The latest EUR/USD drop was accompanied by fresh cycle highs in the U.S. T-note over Bund yield differential above 177 basis points at the 10-year benchmark maturity. The fact that the move is occurring so near to the U.S. payrolls release underscores the degree of bearishness in the market.
Eurozone Q4 GDP growth was confirmed at 0.3% quarter over quarter, in line with the preliminary reading. The breakdown, which was released for the first time, showed surprisingly balanced growth, with consumption remaining robust net exports contributing 0.2% points to the quarterly growth rate and investment rebounding and rising 0.4% quarter over quarter, while Q3 was revised up to 0.0% from -0.2% quarter over quarter reported initially.
Greece submitted reform proposals for review at the Eurogroup meeting on Monday. German Finance Ministry spokesman Jaeger meanwhile stressed that Greece must implement the program to get tranche payment and that it is up to Greece to accelerate the payout. The EU, meanwhile said Juncker and Tsirpas are in constant telephone contact and the EU is on contact with Greek authorities over the country’s financing needs.
German industrial production rose 0.6% month over month in January, slightly stronger than we expected, although the main surprise was the marked upward revision to December data from 0.1% month over month to 1.0% month over month, which lifted the starting base for this year and the annual rate for January to 0.9% year over year, from 0.5% year over year at the end of last year.
The improving trend in orders as well as the rise in confidence indicators suggest robust growth in the Eurozone’s second largest economy and this time around it is as much consumption and domestic demand as exports that are driving the recovery. Wage deals this year are set to come in high and the drop in oil prices is freeing up real disposable income, but the developments also herald a decline in German competitiveness that will undermine the longer term growth outlook.
Target support for the EUR/USD currency pair is now seen near the August 2003 lows at 1.08. The RSI (relative strength index) a momentum oscillator that measures overbought and oversold levels is printing a reading of 25, which reflects and oversold condition and could foreshadow a correction.