Friday, August 20, 2010

Bundesbank Increases Growth Forcast



From Bloomberg:

The Bundesbank raised its growth forecast for Germany this year after the economy expanded at the fastest pace in two decades in the second quarter.

Gross domestic product will increase by about 3 percent in 2010, the German central bank said in its monthly bulletin published in Frankfurt today, lifting its forecast from the 1.9 percent it predicted in June. Data last week showed the economy grew 2.2 percent in the three months through June, the fastest since records for a reunified Germany began in 1991.

“The growth tempo will normalize after the extraordinarily dynamic second quarter,” the Bundesbank said. “But all in all, the fundamental economic situation in Germany is very favorable at the moment.”

Booming global demand for German goods is fueling the recovery in Europe’s largest economy from last year’s recession, when it contracted 4.7 percent. While global growth is set to “moderate” in the second half of this year, curbing exports, domestic demand may pick up as the labor market continues to improve and consumers and companies increase spending, the Bundesbank said.

“It’s even a bit on the cautious side,” said Juergen Michels, chief euro-area economist at Citigroup Inc in London who expects 3.4 percent growth in Germany this year. “Germany has bounced back much quicker than everyone expected.”


Notice that about three months ago, traders thought Europe was a basket case about to fall off a cliff. Now it's a growth story. Let's take a look at the euro to see how it is faring with this change.


Prices have clearly rebounded from their lows (a), but ran into upside resistance at the 200 day EMA (b). With the prices recent fall to the 50 day EMA, we've seen the 10 and 20 day EMA move lower. Also note the weak A/D and CMF readings, indicating we're not seeing a big move of fresh money into the euro. Finally, notice that the MACD has given a sell signal, indicating momentum is clearly negative.