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Euro trades on Draghi’s hammer

German factory orders contracted 1.8% in month of August; the slowdown in China is pointed as a major reason for the recent shrinkage in German factory orders as 10% of German exports are destined to China.

A second consecutive month of drop in Germany’s factory orders, combined to the ongoing stress around Volkswagen’s emission scandal, sufficed to revive stress again in Frankfurt this morning. The negative sentiment spilled over the European markets.

The DAX opened downbeat. All sectors trade in the red, utilities lead losses. Volkswagen will certainly remain under decent selling pressure and given the declining buying interest a recovery back to EUR 100 could become a challenge.

The recent appreciation in the euro, the delay in Fed’s rate hike expectations and weaker macro picture could soon bring the ECB to announce more policy action. ECB President Draghi will speak in Frankfurt today and could pamper the euro market with additional dovishness. Rising downside risks on the euro keep traders on the sidelines. We are at critical 0.74c and 1.12 against the pound and the US dollar respectively and the buying interest could well fade following how dovish Draghi will sound in Frankfurt today.