EUR/USD rises as German GDP beats forecast

The euro is up for a third straight day on Wednesday. In the European session, EUR/USD is trading at 1.0839 at the time of writing, up 0.20% on the day.

Germany’s GDP for the third quarter surprised on the upside with a modest 0.2% gain. This was above the -0.1% reading in the second quarter and the market estimate of -0.1%. The German economy managed to avoid a technical recession, which is defined as two consecutive quarters of negative growth.

On a yearly basis, GDP fell by 0.2%, compared to zero growth in Q2 and a market estimate of -0.3%. Germany’s economy, the largest in the eurozone, remains in trouble and is weighing on the bloc. Eurozone GDP will be released later today and is expected to show a gain of 0.2% q/q and 0.8% y/y in Q3 vs. 0.2% q/q and 0.6% y/y in the second quarter.

German, eurozone inflation expected to accelerate

The markets will be keeping an eye on German inflation, which is expected to rise to 1.8% y/y in October, compared to 1.6% in September. This will be followed on Thursday with eurozone CPI, which is projected to rise from 1.9%, up from 1.8% previously. Core inflation is expected to creep lower to 2.6%, down from 2.7% in September and above the European Central Bank’s 2% target.

The German and eurozone inflation releases will be significant factors in the ECB’s rate plans. The central bank holds its final meeting of the year in December and a rate cut seems likely, although there is dissension among ECB Governing Council members as to the extent of the hike. If October’s inflation data is weaker than expected, we are likely to see growing calls for a jumbo 50-basis point cut at the December meeting.

EUR/USD technical

• EUR/USD is testing resistance at 1.0840. Above, there is resistance at 1.0861.

• 1.0804 and 1.0783 are the next support levels.