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.
Trade Desk Thoughts: The German economy contracted in the fourth quarter by 2.1%, much more than the market expected. The released number also represents the biggest quarterly drop since the German unification. Compared with Q4 2007 the German economy contracted by 1.7%.
The German economy is facing a rather strong recession right now as its export market plunged and industrial production dropped at a strong pace in recent months. Domestic demand also was lower in Q4 than in Q3, which had a negative effect on the GDP read.
In the first three quarters of 2008, the German economy grew 1.5%, a much slower pace than in the preceding three years. This may instigate a sell the rumor move that the ECB will be reducing interest rates at the upcoming rate decision in March, and may also instigate chat about currency values at the G7 meetings that start today.
Forex Technical Reaction: The euro fell 35 pips after the release hit the wires. In the Asian sessions, the euro traded mix, unable to break and hold anywhere. Against the pound, the euro declined tonight 50 pips.