German economy in recession amid high inflation

German gross domestic product (GDP), the eurozone's largest economy, fell 0.3% in the first quarter of the year, down from 0.5% in the fourth quarter of 2022, implying that the German economy may have entered a recession at the start of the year due to high inflationary pressures on household spending.

Household consumption in Germany declined 1.2% quarter over quarter, while government spending fell 4.9%. On the contrary, investment increased in the first three months of the year after declining in the second half of 2022, with investment in machinery and equipment up 3.2% compared to the previous quarter, construction up 3.9%, exports up 0.4%, and imports down 0.9 percent.

However, a decline in household purchasing power, the main economic driver, light industrial orders, tighter monetary policy, and the slowing of the US economy are all putting pressure on German and Eurozone economic activities during this period, as nominal wages are expected to reach a high this year, while real wages are expected to fall back to 2019 levels by 2025.

On Thursday of this week, the eurozone will release consumer price inflation figures for May. This is expected to emphasize that the European Central Bank still has a long way to go in its struggle to keep pricing pressures under control. Year on year, headline inflation is now 7%. Annual core inflation is 5.4%, significantly above the ECB's 2% target.

The US economy, on the other hand, faced price pressure once more after US consumer spending rose more than expected in April, owing to labor market flexibility, manufacturing sector recovery, and accelerated business activities that support second-quarter economic growth and rising inflation, which could prompt the Federal Reserve to raise interest rates again next month. As a result, the euro is predicted to remain under pressure, albeit it may adjust up and down depending on the lines. While discussions on the US debt ceiling are expected to conclude, market tensions have lessened slightly.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0727, 1.0730, 1.0735

Support : 1.0717, 1.0714, 1.0709                       

5H Outlook

Source: Investing.com                           

Buy/Long 1 If the support at the price range 1.0712 - 1.0717 is touched, but the support at 1.0717 cannot be broken, the TP may be set around 1.0727 and the SL around 1.0708, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0727 - 1.0732, TP may be set around 1.0740 and SL around 1.0713, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0727 - 1.0732 is touched, but the resistance at 1.0727 cannot be broken, the TP may be set around 1.0714 and the SL around 1.0736, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0712 - 1.0717, TP may be set around 1.0701 and SL around 1.0731, or up to the risk appetite.       

Pivot Points May 29, 2023 02:41AM GMT

Sources: Investing 1, Investing 2