This morning’s release of German ZEW investor confidence data showed a steep decline from last month’s figure, retreating from 17.5 last month to 10 in this month’s report. Although the conditions in the Eurozone’s largest economy still indicate some investor confidence within German investors, the number released today does hint towards a possible slowdown in the 3rd quarter and beyond.
I am expecting this to cause some Euro weakness in the later part of this year, partly because the main aspect weighing on the ZEW, which is effectively a survey of confidence on the main industries, such as the Banking and the Automotive industry.
Euro strength becoming a problem?
The Euro has been extremely strong against many of the major currencies in recent months. This was following comments from economists that the Eurozone’s economic recovery was showing no signs of slowing down. The strong Euro has been cited as the main cause for the steep decline in exports, such as Germany’s automobile fall out from today’s ZEW economic survey. The ECB have commented recently that a strong Euro wasn’t particularly desirable and this latest data is evidence of why, especially since Germany is thought of a the engine room of the Eurozone.
Mario Draghi’s Jackson Hole Symposium speech
Mario Draghi’s speech at the Jackson Hole Symposium will now come into full focus as investors look carefully for clues as to whether he will look at tapering the ECB’s €2tn Quantitative Easing (QE) programme, and for future direction of the Euro.
I would expect for Mario Draghi to try to talk down the recent strength of the Euro as this is causing a headache for exporters and banks as seen today in the ZEW report. I wouldn’t expect him to discuss the Quantitative Easing programme in too much detail as this is likely to shake the Euro quite drastically. Is this the start of a weak period for the Euro?