EUR/USD: is Germany in service sector stagflation?

(Video Transcript)

German PMI services plunge

There's been more dire German economic data out today, with PMI services tumbling sharply from 52.3, which is expansion over 50, to 47.3, a nine-month low estimates have been for a reading just around above the 50 mark. PMI composite dropped from 48.5 to 44.7, a new 39-month low.

There was one bright spot, however. German manufacturing PMI data ticked up from 38.8 to 39.1 in August, well below that watershed between contraction and expansion. That was marginally ahead of forecast, but PMI manufacturing output fell from 41 to 39.7, a 39-month low.

So, no hope of the services sector coming to the aid of a slump in German manufacturing. Economists are now saying that there's a serious chance of stagflation in the services economy in Germany. That's contraction, while prices are rising, the worst of all worlds. It's bad news for the European Central Bank (ECB), which can only watch as it has to raise rates to quell inflation.

Dollar dominates euro

I want to show you this chart. This is the euro-dollar chart, and you can see clearly today we're down here. This is the euro down against that stronger US dollar. This is ahead of the Jackson Hole symposium, which starts on Thursday, tomorrow.

You can see here we're just resting on the red line, which is the 200-day moving average, which is a significant level of support, and it relates to levels not seen on this chart. So it's 14 June, but in fact, this is the new line, the target line to watch out for.

If you're short on this, continue to bring your stock down in and tuck it just a little bit above recent price action, and your price target will be the 106.35, which are the lows back on 31 May, and you can then see there's another step lower then, as well further on down at 105.16.

Germans face higher interest rates as prices climb

The significance of the euro-dollar here for the German economy is the fact that Germany is the largest economy in the Euro Zone, and it does have sway over what's happened, but unfortunately for the economy itself, it does have to face higher interest rates because the European Central Bank (ECB) has no option but to raise rates as prices climb.