EUR/USD has posted gains in the Friday session. Currently, the pair is trading at 1.1766, down 0.28% on the day. On the release front, German numbers were a disappointment. German Industrial Production declined 1.0%, well off the estimate of 0.4%. Germany’s trade surplus narrowed to EUR 19.4 billion, short of the estimate of EUR 20.3 billion. French Industrial Production also declined, with a reading of -0.5%. This missed the estimate of 0.4%. There are no major U.S events on the schedule. Later in the day, leaders of the Group of 7 will gather for a two-day meeting in Quebec City.
Is the German manufacturing sector in trouble? After a sluggish first quarter, analysts were hoping for a rebound in manufacturing data in the second quarter. However, this week’s manufacturing indicators are pointing to a downturn in April. Factory orders declined 2.5%, its worst showing in three months. On Friday, Industrial Production fell 1.0%, marking the fourth decline in five months. As the locomotive of the eurozone, German indicators can have a strong impact on the euro exchange rate – if German numbers continue to miss expectations, investors could give the euro a thumbs down and send it lower.
The upcoming G-7 meeting in Quebec is being closely monitored, as the summit comes at a time of escalating trade tensions between the U.S and some of its major trading partners. Last week, finance ministers from six members of the G-7 were united in their criticism of US Treasury Secretary Steve Mnuchin over the brewing trade war. The trouble started last week, when the Trump administration slapped stiff tariffs on Canada, Mexico and the European Union. This resulted in promises of retaliation, and Canada and Mexico have already announced duties on U.S products. Will we see a higher profile, repeat performance at this meeting? The escalating trade battle is sure to dominate the summit, where Trump can expect to hear strong complaints from other leaders over the tariffs, which Trump justified on the grounds of ‘national security’. If the leaders fail to resolve matters, the result could be a nasty trade war between the U.S and its major trading partners.
