Impact of weaker German economic data

In the face of the Eurozone crisis the German economy has so far remained resilient. With over half its exports going to other European countries - many of which are in an economic slump - Germany's economy has limited room to grow. Today's disappointing trade data may well be the first sign of an inevitable slowdown. Already facing a skeptic domestic popular opinion, an economic slowdown will further pressure the government to push for additional austerity measures in peripheral countries.

While the ECB is bent on fighting headline inflation, weaker growth will eventually force the ECB to lower rates - but not before damaging Europe's economies by raising rates first. While a rate hike may strengthen the Euro in the short-term vs the dollar, the monetary union's structural deficiencies are a net negative for the Euro and a positive for German interest rates (lower) vs those in peripheral countries (higher) within the next 12 months.