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EUR/USD – Euro Under Pressure As German Manufacturing Sags

EUR/USD continues to lose ground this week. In the Thursday session, the pair is trading at 1.1329, down 0.13% on the day. In economic news, German industrial production declined by 0.4%, well short of the forecast of a 0.8% gain. The ECB released its economic forecasts for EU members. In the U.S., unemployment claims is expected to drop sharply, with an estimate of 220 thousand. On Friday, Germany releases trade balance.

Global trade tensions and weakness in the German auto sector continue to weigh on the manufacturing sector.. Industrial production fell 0.3% in December, its sixth decline in seven months. This follows manufacturing production, which plunged 1.6% in December. Manufacturing PMI in January slipped below the 50-level, which separates contraction from expansion, for the first time in over four years. Weakness in manufacturing can be seen across the eurozone, as France and Italy both posted manufacturing PMIs in contraction territory in January. German consumer indicators have also stumbled, raising concerns about the health of the eurozone’s largest economy. CPI declined by 0.8% in January and retail sales plunged 4.3% in December. If the soft numbers continue, the euro will be hard pressed to hold its own against the dollar.

The ECB has projected moderate growth in the EU, but uncertainty has dampened confidence. The bank’s lowered its growth forecast for the eurozone to 1.9% in 2018, down from 2.1% in the November forecast. For 2019, the growth forecast has also been revised down to 1.5%, compared to 1.9% in the November forecast. Inflation slipped in late 2018 due to lower oil prices, with an average inflation level of 1.7%. This is expected to dip to 1.6% in 2019. The report highlighted Brexit and the slowdown in China as key sources of uncertainty for European economies, adding that the projections were subject to downside risks.

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