European Data to Come Out with the Germany Leading the Way

This week should be an interesting one for the Euro, after being battered last week, as additional headlines from Greece and economic data from Germany will hit the board. The ECB released its interest rate decision last week leaving rates at a record low of 1% despite recent problems from western countries. Jean-Claude Trichet noted following the release, that he sees a “moderate” but “uneven” Euro-zone recovery ahead. The diverse recovery between Euro-zone members is having a massive impact on the Euro-zone causing it real GDP to lag behind. When observing the chart below one can see that Euro-zone is barely keeping up its pace, trying to keep up with the U.K.

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Apart from slow real growth which is weighing on the Euro, the currency is being pressured by the PIIGS (Portugal, Ireland, Italy, Greece and Spain) budget deficit issues. Many market participants are questioning the strength of Spain and Portugal, anticipating that further problems could lead to additional devaluation of the Euro. Furthermore, investors are now clearly avoiding European bonds, causing spreads between the countries to significantly widen.

To add to the recent gloomy news headlines from Greece, Germany’s Consumer price index and GDP result is scheduled to be released this week, two events that could put further pressure on the Euro. Germany’s CPI (yoy) result is expected to come out at 0.8% while its monthly result should show a -0.6%. The German CPI is significant as one of the primary gauges of inflation. As the largest Euro-zone economy, inflation in Germany will contribute significantly to inflation in the Euro-zone and the behavior of the European Central Bank. In addition the large economy is scheduled to release its GDP figure during the week. The Gross Domestic Product is a comprehensive measure of a Germany’s overall production and consumption of goods and services. This time round analysts are expecting growth to come out lower than the previous quarter’s result of 0.7% at only 0.2%.

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