Euro Rate Today: EUR/USD Exchange Rate Surges as US Data Slumps

The euro exchange rate complex (EUR) has shot higher on Wednesday after a surprisingly poor US economic data docket was released.

The sudden and violent slump in the USD comes on the back of some eye-opening and worrying data - markets have opted out of the overbought dollar and bought into the oversold euro.

NY Empire State Manufacturing Index (Sep) came in at 6.17, well below expectations for 20.50. PPI inflation data came in at 1.6 pct month-on-month in September, analysts had expected 1.8 pct.

And Retail Sales ex Autos (MoM) (Sep) came in at -0.2 pct - analysts had expected growth of 0.3 pct.

This is worrying - it appears the US economy has started to slow down. While this has been expected to be happening in the UK economy it was expected that the US would steam ahead.

Euro Rate Today: For Reference

• The euro dollar exchange rate (EUR/USD) is 0.79 pct higher on a day-to-day basis at 1.2763.
• The euro pound exchange rate (EUR/GBP) is 0.40 pct higher at 0.7991.
• The euro Australian dollar exchange rate (EUR/AUD) is 0.04 pct higher at 1.4535.

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German Economy Under-Performing: But is There a Recession Ahead?

"Market volatility is on the up in reaction to three major themes at the moment; a collapsing oil price, sovereign bond yields flying lower and continued fears of a global slowdown," says Jeremy Cook at brokerage World First in reference to market conditions that broadly favour the US currency.

German data this October (industrial production and new orders) increased concerns on the strength of the recovery and in some instances suggested Germany may enter a technical recession in Q3.

The most powerful economy in the Eurozone is absolutely critical to the outlook for the euro. Indeed, analysts primarily use historical German Mark values when back-dating the performance of the euro indicating the importance of Germany on the EUR.

"Sentiment towards EUR remains weak and with Eurozone data continuing to disappoint, this perhaps justifies the current level of EUR. Following the weak German industrial production data last week, Eurozone industrial production data today is expected to be disappointing; the market is forecasting a drop of 1.6% m/m. The German ZEW survey is also expected to decline from last month; suggesting the bearish EUR story will likely continue," say Lloyds Bank Research.

The result are markets and analysts have had to lower their growth profiles for Germany and the Eurozone.

The result has been a continued under-mining of the euro exchange rate complex through the course of the week.

However, Ruben Segura-Cayuela at Bank of America Merrill Lynch says the fears may be overblown:

"There are special factors behind the weakness of August data and so we still anticipate positive growth. Calendar effects and model changes in auto factories in Spain contributed to the weakness in Germany. Industry production data for September suggests most of the negative impact in August should be undone in the following month’s figures."

All eyes are now on next week's ZEW data for October which will provide foreign exchange traders with another opportunity to see if German confidence is already starting to bottom out in line with our expectations.

If Segyra-Cayuela is correct there is the argument to be made that markets are being overly pessimistic on the euro.

Euro Dollar Exchange Rate Predicted to Bounce

In that vein, Segyra-Cayuela's colleague Nick Bate is of the opinion that the euro is due a bounce against the dollar.

However, it could be argued that any strength in the euro dollar rate could be a funtion of dollar weakness as opposed to euro weakness.

Bate says:

"The US dollar is showing signs of correcting lower against both the euro and Japanese Yen. The euro dollar can rally to 1.2850/1.3000, while dollar yen can extend lower into 107.63/106.85."

It is however important to note that this is a shorter-term forecast.

Longer-term BofA join the majority of analysts out there and suggests that any dollar weakness should should be seen as a buying opportunity for those with longer-term timeframes.