Markets did not expect it, German industrial production has surprisingly strongly declined in June to -1.1% (monthly performance) while markets estimated the data to increase around 0.2%. However the overall annualized performance remains positive at 2.4%. It is nonetheless the biggest decline in 6 months.
The Eurodollar has barely moved amid the release of this data and the pair keeps on trading slightly above its opening level around 1.18. Seasonality may also be responsible as historically there always a decline in German industrial production growth during the summer, yet it often happens in July or August and not so early. Indeed construction tends to slow during those months.
The decline in Industrial production is now putting a stop to a strong first quarter in the Eurozone. FX markets are not concerned by this pullback and markets does not seem to worry about German Q2 GDP data that should be released next week. For the time being, a weak industrial production is only seen as a retracement after strong momentum since the start of the year. Markets may be overly optimistic about the German economy and the euro rally may soon fades in case of confirming soft data.
By Yann Quelenn