Following last week's ECB very dovish conference, in which Trichet was believed to have put any tightening plans in the eurozone on hold for an indefinite amount of time, today's release of very strong core Eurozone data once again brings the specter of a rate hike to the fore, sending the EURUSD notably higher, and of course, leading to a weakening in the dollar. In addition, the already well known schism between Europe's core and periphery continues, following very weak data reported in the austere PIIGS countries, offset by consensus beating growth in Germany and France. From Bloomberg: "Euro-region economic growth accelerated to the fastest pace since the second quarter of 2010, powered by forecast-topping expansion in Germany and France that offset the impact of tougher austerity measures from Ireland to Spain. Gross domestic product in the 17-member euro area rose 0.8 percent from the fourth quarter, when it increased 0.3 percent, the European Union’s statistics office in Luxembourg said in a statement today. Economists had forecast the economy to expand 0.6 percent, according to the median of 31 estimates in a Bloomberg News survey. GDP rose 2.5 percent from a year ago." All of which once again proves that there is no possibility that Germany and France will ever allow a disintegration of the euro, and will continue to bail out all their troubled neighbors as the continued pegging of Germany's red hot economy to such weaklings as Greece is the only factor that matters for the country's export-led growth.
“I’m rather optimistic for the euro-region outlook overall, while periphery states remain a problem,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “Germany will remain the growth pillar. The second quarter will show some weakening in growth after a buoyant first quarter.”
In Germany, Europe’s largest economy, GDP rose 1.5 percent in the first quarter after increasing 0.4 percent in the previous three months. That’s helping shield the euro region from a debt crisis as peripheral countries struggle to restore growth. In Greece, the economy grew 0.8 percent, while Portugal shrank 0.7 percent.
That said, it may be time for Goldman to take profits on their EURUSD trade with a target of 1.50: it appears the likelihood of the pair returning to such lofty levels is negligible now that the world is once again reminded about Europe's structural woes:
Euro-dollar meanwhile was at $1.4264 near the Asian close, near the top of a $1.4184 to $1.4266 range.
The pair fell to a low of $1.4121 last night in the U.S. but recovered in the afternoon. It kicked off the Asian session near $1.4245 but failed to hold on to the gains, slipping through $1.4200 for a low of $1.4184 this morning.
The pair managed to temper part of the losses in mid-morning trade here, edging back up to around $1.4200 by around midday, before the German data then triggered a sharper recovery, compared with where it had ended in the U.S. overnight at $1.4246.
The data showed seasonally and calendar adjusted GDP rose 1.5% q/q. The government had expected quarterly growth of only 0.8%. The annual calendar-adjusted rise was 4.9% (+5.2% unadjusted). GDP has now exceeded the pre-crisis level at the start of 2008, the statistical office noted.
"Lingering sovereign debt worries within the Eurozone periphery economies are unlikely to go away soon and will continue to weigh down on the euro so we are unlikely to see euro-dollar returning to $1.4900 anytime soon," commented analysts at United Overseas Bank.