Stronger German Factory Orders Limit Euro US Dollar (EUR/USD) Exchange Rate Downside
The Euro (EUR) found some support on the back of the latest German factory orders data, which surprised to the upside with growth of 0.3% on the month in September.
As forecasts had pointed towards a fresh contraction in orders this offered some encouragement to investors, even though this still represents a rather muted level of growth.
With the Eurozone’s powerhouse economy showing some signs of resilience the downside pressure on EUR exchange rates eased.
However, as Carsten Brzeski, Chief Economist at ING, commented:
‘It is the first time this year that industrial orders increased in two consecutive months. In times when pessimism has the upper hand, this positive news from German industry brings some glimmers of hope. That said, just as we didn’t get carried away by the soft patch earlier this year, we won’t start celebrating monthly new orders data just yet.
‘All in all, today’s industrial orders bring welcome relief in a period of increasing pessimism. Nothing more but fortunately also, nothing less.’
With confidence in the outlook of the Eurozone economy still generally limited the Euro to US Dollar (EUR/USD) exchange rate ultimately struggled to find any particular traction.
US Dollar (USD) Exchange Rates Soften Ahead of US Midterm Election
Demand for the US Dollar (USD) remained muted, meanwhile, as markets braced for the results of the midterm elections.
The potential for a political shakeup has kept USD exchange rates under pressure this week, with investors wary of a policy deadlock if the Democrats make significant gains.
On the other hand, if the Republicans hold onto control of the House of Representatives and the Senate this is likely to offer the US Dollar a strong rallying point.
Thursday’s Federal Open Market Committee (FOMC) policy announcement may also provoke volatility for the EUR/USD exchange rate.
If policymakers indicate that they remain on track to raise interest rates once again in December the downside potential of the US Dollar is likely to diminish.
As long as the Federal Reserve looks set to continue tightening monetary policy investors will continue to buy into the US Dollar.
Widening German Trade Surplus to Shore up Euro (EUR) Exchange Rates
EUR exchange rates may find a fresh boost, however, if the latest German trade data proves encouraging.
Investors expect to see the trade surplus widen from 17.2 billion to 20 billion in September, suggesting that the German economy is returning to a stronger footing.
A solid rebound in exports on the month should offer encouragement to the Euro, indicating that the negative impact of global trade tensions is starting to diminish.
Any disappointment, though, would leave the EUR/USD exchange rate exposed to fresh selling pressure this week.
Worries over Italy could also drag on the Euro, meanwhile, if the government continues to refuse to redraft its controversial 2019 budget proposal.
A persistent sense of political unease could weigh heavily on the Euro to US Dollar (EUR/USD) exchange rate in the days ahead.