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23 Oct 2019
2 min read

Bundesbank Signals a Possible Recession in Germany

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Written by OspreyFX News Team

Bundesbank signals a possible recession

On Monday, the Bundesbank published the latest edition of its monthly report on the state of the German economy. The report wasn’t particularly positive. It is important to realise that it showed a new note in Germany’s financial health between July and September.

The central bank explains there is a risk that the slowdown in exports will be more noticeable in domestic consumption. “The production of the German economy could have been cut again slightly in the third quarter of 2019. The leading indicators show little sign of a sustainable recovery in exports or stabilisation of the industry. This raises the risks that the slowdown will extend more to the sectors more focused on domestic demand” the financial times’ report said.

The Bundesbank also warned about an increasing risk of contamination from the industrial sector. Which could harm national demand and increase the possibility for Germany to enter a recession. In fact, on August 27, the Federal Statistics Office of Germany reported that the German economy had contracted 0.1% between April and June. Now, the focus will be on the German GDP, which will be announced on November 14. It is expected that, if it contracts again, the country would be officially entering a technical recession.

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EUR/USD reaction after the German news

The pair started the week in decline amid the disappointing news coming from Germany, consolidating slight losses around 1.1150. There are signs of a deeper correction towards the 200 SMA at the H4 chart, which has a confluence with the key psychological level of 1.1000.

The US Dollar remains the strongest across the board, despite the correction which has been working against major currencies. Unless the trade war takes another step, to strengthen the current truce and thus provide clear signs that overall conversations are going well, the “king dollar” will keep its bullish tone. However, it is important to note that a corrective move could be done in small steps and gradually. The first barrier to overcome would be the support zone and round figure at 1.1100.

The RSI of 14 bars is starting to show a bullish move’s exhaustion on a short-term basis, which signals further decline in the upcoming hours. Also, the Momentum indicator is pointing downwards, favouring the EUR/USD pair’s overall stance to retrace and then enter a consolidation phase. Nonetheless, if the resistance area at 1.1200 gives up, then a rally should extend towards new multi-week highs, invalidating the overall bullish bias in the greenback.