Germany’s preliminary first quarter gross domestic product (GDP) growth will be on tap shortly at 6:00 am GMT. Germany is seen to post a dismal 0.0% growth during the first leg of this year. However, given the unexpected 2.4% skid in German retail sales last March, the country’s overall output could even miss the 0.0% forecast. Remember that domestic consumption makes up about 56.7% of Germany’s GDP. And as we know, the retail sales account is used as a leading indicator of the country’s production as a whole. Hence, such drop in retail could negatively reflect in the first quarter GDP.
So what does this mean for the euro?
Note first that Germany takes up about a third of the euro zone’s total GDP. A weak German number, therefore, could likewise translate in the euro zone’s broader account. If German’s GDP fails to impress, such would place the country back in contraction mode, making investments in Germany and even in the euro zone all the more less attractive. This, of course, will force a lot of investors to pull their money away from German investment vehicles, making the demand for the euro a lot lesser as well.
At present, the EURUSD is trading just below 1.2650 while the EURJPY is moving just around 117.00. A negative German GDP reading, consequently, could possibly send the EURUSD and the EURJPY lower somewhere at 1.2550 and 116.00, respectively.