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Release Explanation: Gross Domestic Product (GDP) determines the total worth of all goods and services produced by the economy. GDP is the broadest measure of activity and the primary gauge of the economy's health. To foreign investors, a strong economy is viewed favorably as it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy. “The combination of these effects can have a large impact on the demand for the country's currency. An upward trend has a positive effect on the country's currency,” TheLFB-Forex.com Trade Team said.
TheLFB-Forex.com Trade Desk Thoughts: The German economy contracted in the first quarter by 3.8%, as the preliminary read showed. The released number represents the biggest quarterly drop since records first begun, in 1970. Compared with Q1 2008 the German economy contracted by a whopping 6.9%.
“The German economy is facing a rather strong recession right now as its export market plunged and capital formation dropped at a strong pace in recent months. Only the trade balance subtracted 2.2 points of the GDP, while inventories added 0.6 points. However, household and government spending increased slightly in the first quarter,” TheLFB-Forex.com Trade Team said.
“The week GDP numbers put additional pressure on the German Government and on the ECB to help the economy. Most likely, the recovery date will be further delayed following this release,” TheLFB-Forex.com Trade Team added.
Forex Technical Reaction: The euro had a weak reaction to the news release. The pair is trading trapped between the neutral pivot point (1.4000) and TheLFB S1 (1.3970), after it lost 30 pips since the Tuesday session started.
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