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Euro opens weaker as German trade surplus plunges

The Russian/Ukrainian/NATO geopolitics is keeping nerves strained in the markets this morning, so there has been a push into the safe-haven currencies. The German trade balance data will also be a worry for investors looking for longer-lasting economic recovery and rate hikes in the Euro Area.

Market Brief

The German Federal Statistical Office (Destatis) revealed in its report this morning that the country's non-adjusted foreign trade surplus came to €7.0 billion in December 2021. It came to €6.8 billion in calendar-adjusted terms. The overall surplus in 2021 was €173.3 billion.

In November, exports increased by 0.9% over November, and 15.6% over the same period in 2020. The imports grew by 4.7% month-over-month and 27.8% year-over-year to €110.0 billion. Overall, exports reached €1.375 billion in 2021, and imports reached €1.202 billion.

From looking back across the last 12 months it is clear to see the trade surplus has diminished dramatically. This is also the 3rd consecutive month of decline. If the trend continues Europe’s economic engine will be going in reverse.

In comparison, the United States is a net importer and its trade deficit in goods and services increased 1.8% in December from the previous month's revised figure to $80.7 billion, according to the United States Bureau of Economic Analysis. There was an increase of $3.2 billion in the goods deficit to $101.4 billion and an increase of $1.8 billion in the services surplus to $20.7 billion, contributing to the rise in the deficit.

The EURUSD has pulled away from the recent highs having just tagged the previous significant high of 1.14825 and possibly setting up for a more aggressive break higher. I am still of the mind that we come back to the middle of the range and the 1.1300 level.

The EURGBP is also potentially building market structure for a trend reversal but found resistance at the 61.8% Fibonacci retracement.

The German 30-year Bond auction will be completed later this morning. The German 30-year yield reached a new high for this quarter yesterday but is trading slightly lower in early London session trading today at 0.468%. The German 1, 2, 3 & 5-year yields are all negative.

If the yields begin to fall again, this could accelerate the decline in the euro and that scenario became more likely when ECB’s Villeroy said in a speech yesterday that the market reaction to the ECB meeting the week before may have been too strong.

Congress passed a stopgap funding bill last night to avoid a government shutdown. Keeping federal agencies funded until March 31 was approved by a vote of 272-162, which gives lawmakers more time to reach an agreement on a longer-term spending bill. The legislation is headed to the Senate floor next. During January the Federal Government was taxing more than it was spending, creating a surplus for the first time in a couple of decades. This has now reverted to being a deficit and this should once again prop up risk assets like US equities indices.

The forex heatmap is building a green band in the middle so a mixed day to start the London session. Like the yen, the Swiss franc is being canceled by the Aussie and Kiwi strength, I am looking for the weakness in the euro and strength in the British pound to work out today with a continuation lower in the EURGBP.

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