Euro zone growth failed to meet economists’ expectations with Germany, the economic engine of showing particular weakness. The disappointing GDP numbers dragged the euro lower as the Merkel-Sarkozy meeting draws near.
EZ flash GDP for Q2 came in at 0.2%, below forecasts of 0.3%. Exports declined by 4.7% in June, highlighting the slowing of the European economy. More worrisome is the tepid growth found in Germany which has helped to lift the EZ from the 2008 recession. German GDP increased by only 0.1% after climbing 1.3% in Q1. On average German growth is near 0.3%. Keep in mind that France last week reported a flat Q2 GDP. The weak growth data does not bode well for the euro zone or the global economy. Going forward the austerity measures in Spain, Italy, Greece, and Portugal will do little to support increased growth in H2. Later today the Merkel-Sarkozy meeting is not expected to reach any breakthrough on the subject of Eurobonds and could intensify the euro negativity seen so far today.
The EUR/USD is trading at its daily low near 1.4360 after failing to make additional gains above the falling trend line from the May and July highs. Initial support is found at 1.4330 followed by the hourly trend line at 1.4270. Resistance is located in a range from 1.4450-70, followed by 1.4540.
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