The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise 20K in September, and the downturn in the labor market is likely to increase the risks for a double-dip recession as Bundesbank President Axel Weber anticipates a “muted” recovery.
Trading the News: German Unemployment Change
What’s Expected
Time of release: 09/30/2009 07:55 GMT, 03:55 EST
Primary Pair Impact : EURUSD
Expected: 20K
Previous: -1K
Impact the German Unemployment Change has had on EURUSD over the last 2 months
| August 2009 German Unemployment Change Unemployment in Germany fell 1K in August despite forecasts for a 30K rise, with the jobless rate holding at 8.3% for the third month, and policy makers are likely to maintain the expansion in monetary and fiscal policy over the coming months in order the steer the nation out of recession. As the government spends EUR 80B to stem the downside risks for growth and inflation, business are becoming less pessimistic towards the economy and firms may look to retain employees as growth prospects improve however, as the stimulatory effects begin to taper off, business may continue to scale back on production and employment in order to weather the downturn in global trade. As a result, the European Central Bank is widely anticipate to hold borrowing costs at the record-low going into the following year, and may expand policy over the coming months to foster a sustainable. |
| July 2009 German Unemployment Change Job losses in Germany unexpectedly fell 6K in July amid expectations for a 43K rise, with the annual rate of unemployment holding steady at 8.3% for the second month, and the data reinforces an improved outlook for the region as the government takes unprecedented steps to shore up the ailing economy. As a result, the Bundesbank held an improved outlook for the nation and expects economic activity to contract “only slightly” in the second-quarter following the expansion in monetary and fiscal policy however, as the government stimulus begins to taper off, businesses may curb their willingness to retain workers as global trade conditions remain weak. Nevertheless, as the Organization for Economic Cooperation and Development forecasts economic activity to contract 6.1% this year, firms may continue to scale back on production and employment in order to reduce their cost structure. |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
How To Trade This Event Risk
The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise 20K in September, and the downturn in the labor market is likely to increase the risks for a double-dip recession as Bundesbank President Axel Weber anticipates a “muted” recovery. Nevertheless, the final GDP reading showed economic activity expanded 0.3% in the second quarter following an 0.8% rise in capital investments, while construction spending increased 1.4% after rising 0.2% in the first three-months of the year, and businesses may increase their willingness to retain their employees as the nation emerges from the worst recession since the post-war period. Moreover, the trade surplus expanded to EUR 13.9B from EUR 12.1B in June, led by a 2.3% rise in exports, while factory orders jumped for the third consecutive month in July as demands for capital and intermediate goods improved, and businesses may hold an enhanced outlook for future growth as global trade conditions pick up. However, Mr. Weber held a caution outlook and said that the nation is “far away from a sustainable upswing” as he projects economic activity to return ‘only slowly’ in 2010, while European Central Bank council member Yves Mersch sees a risk for a double-dip recession in the euro-region as the financial system remains fragile, and the dovish outlook held by policy makers suggests that the economy will continue to face headwinds going into the following year as the government stimulus tapers off. At the same time, Deputy Economy Minister Hartmut Schauerte anticipates small to medium-sized firms within the region to face tightening credit standards during the first-half of 2010 as banks remain reluctant to lend, while the Halle Institute for Economic Research forecasts household spending to weaken going forward as the group projects the annual rate of unemployment to surge to 10.3% in the following year, and businesses may take additional steps to lower their costs as the economic outlook remains uncertain. As a result, the Governing Council is likely to hold the benchmark interest rate at the record-low going into the following year and is widely expected to maintain a neutral stance as policy makers project growth prospects to remain subdued throughout the first-half of 2010.
Expectations for a rise in German unemployment favors a bearish outlook for the euro but nevertheless, the unexpected drop during the past two-months has left the door open of an enhanced labor report. Therefore, if the economy sheds 5K jobs or less in September, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing low, or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches the target in order to preserve our profits.
On the other hand, fears of a protracted recovery paired with the slump in global trade may lead firms to take additional steps to lower their cost structure, and price action following a dismal labor report could set the stage for a short EUR/USD trade as the outlook for future growth deteriorates. As a result, if unemployment rises 20K or more from the previous month, we will favor a bearish outlook for the single-currency, and will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
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To discuss this report contact David Song, Currency Analyst: [email protected]
