German industrial production rose in July – the euro reacted

[Ben Graham]

The euro posted a modest gain on news that industrial production in Germany rose more than expected in July, offering some hope that the country's key sector may be stabilizing and could soon overcome its prolonged downturn.

According to Destatis, output increased by 1.3% compared to the previous month, driven by growth in machinery and equipment production. This was the first increase since March.

This modest recovery, however, should not be viewed as a signal of full recovery. Germany's economic indicators, along with those of the eurozone, remain fragile, weighed down by geopolitical risks and structural problems. Nonetheless, the positive surprise from Germany serves as a beacon pointing to potential resilience in German industry, which has traditionally been the engine of the European economy.

The stronger-than-expected rise in industrial production may be explained by several factors. First, the low base effect may have made even small improvements appear significant after a long period of decline. Second, government stimulus and support measures aimed at reviving the economy may have played a role. Third, rising demand for German goods from certain countries or sectors may also have contributed to the recovery.

Despite the positive trend, caution remains necessary. The global economy is still unstable, trade conflicts persist, and the energy crisis continues to pressure European businesses.

The statistics office also reported that the previous month's decline was revised to just 0.1% from the initially reported 1.9%, noting that the change was mainly due to corrected data later provided by a major automaker.

The data also point to a good start to the third quarter for manufacturers, whose weakness was a major factor behind the contraction of Europe's largest economy in the previous period. From April to June, GDP contracted by 0.3%.

However, unlike today's figures, last Friday's data showed an unexpected drop in industrial orders in July, undermining optimism that the sector could quickly emerge from its three-year recession.

As for the current technical picture of EUR/USD, buyers now need to break above 1.1740. Only this will allow a move toward testing 1.1781. From there, the pair could climb to 1.1825, though achieving this without support from major players will be difficult. The ultimate target is the 1.1875 high. In case of a decline, I expect strong buying interest only around 1.1705. If no buyers appear there, it would be better to wait for a test of the 1.1660 low or to open long positions from 1.1630.

As for the current technical picture of GBP/USD, pound buyers need to break through the nearest resistance at 1.3520. Only this will allow targeting 1.3550, above which further progress will be difficult. The ultimate target is the 1.3590 level. In case of a decline, the bears will attempt to regain control around 1.3485. If successful, a break of this range would deal a serious blow to the bulls and push GBP/USD toward 1.3450, with prospects of reaching 1.3415.

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