Preliminary data released earlier, showed that factory activity contracted in July in both Germany and Eurozone, as preliminary Manufacturing PMI dropped to 49.2 and 49.6 respectively.
This aggravates recession fears, which are already heightened from the prospect of Russia cutting off gas supply to the continent, despite the resumption of Nord Stream 1.
The data comes hot on the heels of the bold 50 basis points rate lift-off by the European Central Bank on Thursday , with monetary tightening playing into the economic downturn anxiety. However, the central bank did not sound overly committed to fighting inflation, nor did it offer any hints around its next move in September.
GER30 did not overreact to the aggressive hike in absence of any hawkish forward guidance, while today it finds support, despite the poor PMIs. Markets probably believe that prospects of a recession will tie the ECB's hands and make it less willing to pursue further aggressive tightening.
After June's collapse, the German index hit the lowest levels since March at the start of the current quarter, but has since staged a recovery and heads towards its best week since May.
It now tries to cover half of its decline from June's high to this month's low (13,542), but will likely need fresh impetus in order to surpass this area and push for 13,800-30.
The noteworthy recovery however, has stalled over the last few days and this creates risk for a return towards 12,813-00, but new 2022 lows (12,425) have a high degree of difficulty at this stage.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 30 Sep 2022 https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220721~53e5bdd317.en.html