Italian budget debt, negative German growth,Euro in danger

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Italian budget debt and negative German growth pointing future catastrophe
  • Germany economy shrinks in Q3
  • Rome and Brussels continue to be in a collision course
  • EURO and Pound may overlook UK GDP, as political turmoil in focus

EUR/USD stuck under 1.1300 on Italian budget debt and poor German growth data

According to the latest German GDP figures, the country economy shrunk in the third quarter. It also fuels the fears of a continued slowing down of growth. The Q3 GDP release has shown growth contraction by 0.2%, however there is an expansion of 0.5% in Q2. Overall, German annual growth has fallen to 1.1%. Yet, the Euro Zone GDP data is on the focus and market is expected to reach a quarterly growth of 0.2%, which could slow down the future falls.

EUR/USD daily chart

EUR/USD daily chart

Crucially, in later part of Tuesday, the Italian government rejects the EU’s demand regarding its budget plan. In contrast to its previous budget declaration, Italy decided to leave its growth target to 1.5, while the deficit projection was at 2.4%. The Italian Government told that the 2.4% deficit target was a red line, yet they wanted to cross it, as it could help to boost the GDP. On the contrary, EU’s demand was to decrease the budget deficit, as it would harm the overall Euro zone growth momentum. However, as Italian government rejected to reduce its budget deficit, any future resolution regarding this issue appears to be more unlikely to happen.

Bottom Line

As poor German economic data took a snap and future slump are imminent and ‘Rome and Brussels’ political turmoil continues to be at large, further falls of EUR/USD is more likely. While EUR/USD remains stuck below 1.1300 (August 15thlow) and is likely to fall further, initial support level resides at 1.1187. At this moment, this pair is traded around 1.1296, aided by a slightly soft USD.

Read more on Euro outlook and Italian budget saga here

[Disclaimer: The content of this article is personal opinion and should not be considered as investment advice or suggestion towards any trading activity.]

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