Decline in German Trade Suggests Exports May Not Rescue The Euro

Last updated 6/8/2010 2:29 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

German Trade Balance for April printed lower than expected coming in at 13.1 Billion euros versus 14.1 Billion projected. Exports were down a seasonally adjusted -5.9% in April while imports were also lower by -7.9%. The current account posted a surplus of 11.8 Billion euros down from 18.1 Billion in March but still registered the second best reading this year.

Euro bulls have made the case that German exports aided by the more competitive exchange rates will help fuel growth  in Eurozone’s largest economy. However, the data from April suggests that export growth may not necessarily materialize.  The advantages of the lower euro may be offset by a decline  in global demand, caused in part by the fiscal turmoil in the region. Euro’s sharpest fall did not occur until May, therefore currency markets will have to wait to see if the further depreciation in the currency  will have any positive impact on export growth over the next several months. If exports do not increase materially the unit could see more selling pressure as traders begin to price in the possibility of a recession in H2 of 2010 in the world’s largest economic bloc.

The EUR/USD was slightly lower at 1.1950 in the aftermath of the news after climbing to a session high 1.1980 on the back of firmer equity price action in Asia. For the time being 1.2000 remains a key resistance level for the single currency and absent any positive economic news from the region the euro continues to rally only on short covering flows. Later in the day attention will focus on the EuroFin meeting in Brussels with markets looking to see if the finance ministers will lend any additional fiscal support to the unit.  

Comments (2)

Semaj

June 08, 2010 at 07:49 AM ET

OOPS !!! A currency manipulation backfire. Perhaps it's too soon to tell :)

Some verbal intervention though might stop the freefall, at least for a short while. We'll see what this week has in store. Technically we are close to relief level for the Eur/Usd so the timing may be there. It will be interesting to see how the techs perform this time since the fundis are so strong.

fxnewb

June 08, 2010 at 11:05 AM ET

I think that it is too soon to judge that a weaker Euro is not going to boost export. It was just a month ago that all the panic happened, I'm sure overseas importers are being very cautious right now and wait for the dust to settle first. However, if the global economic outlook in Asia and America looks bleak, then I guess the weaker Euro will not boost export much. If that happens, then I guess we're going into a double dip recession?

The Eurozone really need to speed up whatever it needs to do though, letting things drag for too long increases the chance of a double dip recession.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.