German Manufacturing Slump Long-Term Negative for Euro

German manufacturing and the Euro:

• German industrial orders fell by 4.2% month/month in February after a revised 2.1% drop in January.

• That suggests industrial output data due Friday may also be weak, and the poor state of the German economy will likely put long-term downward pressure on the Euro.

German factory orders tumble

German industrial orders dropped by 4.2% month/month in February, better than the 4.5% fall predicted by economists but worse than the revised 2.1% decrease in January. Combined with Mondays news that the IHS Markit/BME German manufacturing PMI dropped sharply in March to 44.1 from 47.6 in February, the data suggest that industrial output figures for February, due Friday, will also show economic weakness.

Monday‘s purchasing managers’ index for the German manufacturing sector fell to its lowest since July 2012, with new orders posting their steepest drop since April 2009 and employment easing for the first time in three years.

Wednesdays services PMI was much more positive but the composite output index for the German economy as a whole was still the lowest for nearly six years, pointing to only modest underlying economic growth.

This is all likely to be ignored by Euro traders near-term but will likely have a negative effect on the currency in the months ahead as the European Central Bank continues to postpone any tightening of Eurozone monetary policy.

EURUSD Price Chart, Daily Timeframe (Year-to-date)

Chart by IG (You can click on it for a larger image)

Meanwhile, yields on German government debt remain negative all the way out to nine years, with the yield on the benchmark 10-year Bund barely positive at 0.003% – a factor that could deter foreign investors from buying the Euro.