07.08.202600:10 Forex Analysis & Reviews: Retail in the Eurozone Turns Negative, Germany Among the Worst: Why Good Data Did Not Help the Euro

Industrial orders in Germany surged by 3.1 percent in June compared to the previous month, according to preliminary data from Destatis, after seasonal and calendar adjustments. Year-on-year, the growth reached an impressive 6.5 percent. At first glance, this seems like an excellent result; however, the structure of the increase reveals its fragility: excluding large orders, order volume was 0.5 percent lower than the previous month.

The breakdown by sectors confirms the one-off nature of the June surge. The main contributions came from mechanical engineering, which grew by 12.7 percent, and from the production of computer technology, electronics, and optical products, which grew by 22.7 percent, with several companies in both segments reporting large individual orders. The automotive industry contributed 3.8 percent, while other transportation engineering, which includes aircraft, ships, trains, and military equipment, plummeted by 41.7 percent from a high level the previous month.

The geographical structure of demand is particularly telling. Foreign orders grew only symbolically, by 0.2 percent. Domestic orders rose by 7.8 percent. In other words, in June German industry relied on the domestic market and on external markets outside the eurozone, while demand from neighbors in the currency union sharply weakened.

However, retail data from the eurozone set the direction of the euro, completely overshadowing the positive news from Germany. According to initial estimates from Eurostat, retail sales in June decreased by 0.3 percent in the eurozone and by 0.1 percent in the EU compared with the previous month, whereas in May the figures had grown by 0.4 percent and 0.6 percent, respectively. Year-on-year, retail sales increased by just 0.7 percent in the eurozone and by 1.2 percent in the EU.

The structure of the decline was broad and thus particularly alarming. In the eurozone, sales of food, beverages, and tobacco decreased by 0.5 percent, while non-food items excluding automotive fuel fell by 0.4 percent; the only growing segment was automotive fuel in specialized stores, which increased by 1.5 percent. A similar picture was observed throughout the EU.

The euro's reaction to this combination of data was indicative: the currency effectively ignored the strong German orders and declined amid weak retail figures from the eurozone. The market logic here is transparent. The German surge in orders was rightly perceived as a one-off event, as supported by the zero dynamics of the three-month indicator, excluding large orders. Retail data, on the other hand, reflect the state of consumer demand across the entire bloc, and its weakening—broad across categories including Germany itself—is viewed by traders as a more reliable signal of the real state of the currency union's economy.