• Since the start of this week, the EUR/USD exchange rate has been trading in a neutral range with a slight bearish tendency, stabilizing around and below the support level at 1.0800.
• This pattern may continue until there is a reaction to the upcoming U.S.
• employment numbers and the Federal Reserve's preferred inflation reading. The U.S. dollar remains the strongest among major currencies, supported by safe-haven demand and tempered expectations of further interest rate cuts.

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On the European side, Germany’s economy, which is the heart of Europe, is showing troubling signs of slowdown. Once renowned for its resilience, Germany's economy is now the slowest growing among the G7 and Eurozone countries. The recent IMF forecasts project a contraction of 0.2% in 2024 and only a 0.8% growth rate in 2025 — a far cry from the robust expansion once associated with Europe’s industrial leader.

The budget gap exceeding 40 billion euros, combined with an expected tax revenue shortfall of 60 billion euros over the next five years, paints a picture of an economy in stagnation. With both small and large German companies tightening their belts, some are questioning if Germany is on the brink of a "lost decade."
 

The Costs of Germany’s Dependence on Exports

For decades, Germany's success relied on its ability to export high-quality goods worldwide, especially to markets like China. Exports account for nearly half of Germany's GDP, significantly higher than other major economies, making it vulnerable when demand falls. Today, German exports to China are struggling, particularly in the automotive and machinery sectors. Companies like Diegoma, a producer of industrial machinery, face order delays due to economic uncertainty and fluctuating demand. This export slowdown has highlighted the risks of an economy heavily dependent on external markets. With China increasingly shifting to local suppliers and global trade slowing, Germany's heavy reliance on exports could pose long-term growth challenges. The German government has already lowered its tax revenue projections, signalling the widespread impact of these economic pressures.
 

Political Divisions Hinder Economic Action

Germany’s economic challenges are compounded by political gridlock, as Chancellor Olaf Scholz's coalition government struggles to agree on key policies. This coalition, an unusual alliance of Social Democrats, Greens, and Liberals, often clashes on issues such as climate regulations, industrial policy, and economic reform, leaving business leaders frustrated by delays and indecision. This discord has had a tangible impact on the economy.

A recent survey found that nearly 37% of German companies are now considering cutting production or moving operations abroad, up from 31% a year earlier. The Greens’ strong stance on climate policy has created tensions within the coalition, drawing criticism from businesses and local leaders alike. This political impasse, along with aging infrastructure, is increasingly seen as an obstacle to the structural reforms Germany needs to stay competitive.
 

Germany’s auto industry on the brink

As one of the country’s biggest contributors to GDP, Germany’s auto sector is struggling with rising costs, falling demand for electric vehicles, and fierce competition from Chinese manufacturers offering more affordable electric cars. Volkswagen recently announced the closure of its first German plant, a historic move that reflects the broader slowdown in the auto industry. Companies such as BMW and Mercedes-Benz have cut their profit forecasts, citing weak demand, particularly in China — a market that once accounted for a large share of their sales.

The ripple effects are being felt across the industry, affecting many of the suppliers and small businesses that support Germany’s automakers. Overall, the shift has left some automakers scrambling to adapt. Volkswagen, for example, has committed to cost-cutting measures, including layoffs and potential production cuts, to stay competitive. But with job losses mounting and supply chains weakening, the industrial slowdown is starting to show in Germany’s employment statistics.
 

Can Germany regain its economic resilience?

The outlook for Germany has become a focal point for mixed views, with recent reports offering both optimism and caution. A recent Bloomberg report suggests that Germany’s economic slowdown “may be over,” with business confidence improving slightly. The Ifo Expectations Index, which rose in October, points to a possible stabilization with sectors such as tourism and information technology showing growth.

For the services sector, which has seen gains amid manufacturing struggles, the latest data offers a glimmer of hope. However, most economists remain unconvinced, arguing that such optimism may be premature. Germany’s industrial base remains in a precarious position. Despite some positive readings, broader economic data is revealing issues

Palladium has been the best-performing asset class among all precious metals last week. The price rise was driven by the US call for G7 countries to impose sanctions on Russian palladium supplies. Russia supplies about 40% of the world's palladium. Earlier this month, the price of palladium broke above its 50-day moving average and then its 200-day moving average within days of each other. In October, approaching these levels provided support for buyers, and given palladium's lower liquidity compared to gold and even silver, strong price movements cannot be ruled out. From current levels near $1,170, the next and easy target for the upside is $1,200, which was the peak at the end of last year. The 200-day moving average is at $1,700 per ounce and breaking that could push prices to higher levels. This could also mean a repeat of the explosive rise from late 2018 to March 2020.

At the time of writing, palladium futures on the New York Mercantile Exchange were around $1,200 per ounce, up 9% since the beginning of last week. Deep-rooted deficits continue to hamper growth. With a projected five-year tax revenue shortfall of €60 billion and a budget gap of over €40 billion, Germany’s fiscal outlook points to economic stagnation rather than recovery.
 

EUR/USD Technical analysis and forecast:

The general trend for the EUR/USD currency pair price remains bearish and stability around and below the 1.0800 support level will continue to encourage bears to control the trend and the continuation of the US dollar’s ​​gains from stronger US jobs numbers this week, along with the demand for buying it as a safe haven, which encourages bears to move the currency pair towards stronger bearish levels.

the closest of which are currently 1.0755 and 1.0600, which are sufficient to push all technical indicators towards strong oversold levels. On the other hand, according to the performance on the daily chart, breaching the downtrend requires moving above the psychological resistance of 1.1000 at least.

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