The EUR/USD currency pair spent most of the European session on Thursday floating around the 1.1300 level, indicating a lack of clear direction. This move comes in the wake of unexpected negative industrial output data out of Germany. May marked a second straight month of contraction in business activity in the private sector. Economic activity has collapsed, severely limiting the Euro’s upside move against the U.S. dollar. Consequently, this has produced a fairly range bound trading environment for the currency pair.
This came after data released earlier in the day showed Germany’s business activity contracted again in May, with all headline indicators printing well below estimates. Analysts were looking for more of a beat. When the actual numbers were released, they reported a contraction, leading to fears that the region’s economy may be faltering. The sudden rescission of business sentiment lays bare the struggles that the German economy is up against. It is being battered by surging inflation and persistent supply chain crises.
On the release of the economic news, the EUR/USD pair has struggled to escape its usual range around 1.1300. As many market participants have noted, this stability has been driven by the absence of major catalysts. Because of this, the currency pair is not being led in either direction. Euro has been unable to catch a bid because of bad data. At the same time, the strength of the U.S. dollar in general has been a factor as investors weigh the economic prospects in both regions.
Traders are eagerly turning their eyes towards key economic releases and geopolitical developments that last impacted the EUR/USD exchange rate. The sharp contraction in German business opens the door to heightened scrutiny of any ECB policy response. Even amid growing pressures, they are committed to promoting smart economic development.
Investors are still showing a risk averse bent under the current trading paradigm. They appear to be waiting for clearer signals about the future direction of both the Eurozone and U.S. economies. As such, fluctuations around the 1.1300 level may persist until market sentiment shifts based on new economic data or unexpected events.