Pound sees strong momentum against the Euro

The Euro has steadily declined during post holiday trading as weak fundamental data and increasing risk aversion and the North Korean Nuclear test have combined to dragged the EUR/USD below the 5/22 low of 1.3888. Indeed, the final German GDP reading remained unchanged at -6.1% as the country experienced its deepest quarterly contraction on record. A drop in exports which fell 9.7% was the main driver of the economic downturn as global demand continues to be impacted by the credit crunch. However, the decline was revised higher from initial estimates of -11.7% which combined with the unexpected 0.5% increase in private consumption provides some hope that the economy is stabilizing. Meanwhile, industrial new orders in March unexpectedly fell -0.8% against expectations for a 0.8% gain.

The decline in activity in the Euro-zone ends the trend of improving data for the region and could be a sign that any form of growth could be a ways off for the region. In Germany, the region’s largest economy, a steeper than expected 7.9% decline in capital investment will make it difficult for the country to realize any short-term domestic growth and considering the dearth of global demand we could see the current recession prolonged. Indeed, there has been some talk that the German government may be looking at a third stimulus package despite Chancellor Merkel insisting in that enough has been done to end the recession. The appears that it will remain under pressure which could lead to a test of support at 1.3810the 38.2% Fibo level of the 1.3422-1.4050 advance.