The latest ZEW survey data, released on August 12, 2025, shows that Germany’s current economic conditions index is at -68.6, lower than the expected -65.0. This is a decrease from the prior index reading of -59.5. The economic outlook index stands at 34.7, below the anticipated 39.8, and down from the previous 52.7. The drop in outlook is mainly due to disappointment among financial market experts regarding the recent US-EU trade deal, which particularly affects the chemical and pharmaceutical sectors. The ZEW data highlights our concerns about the health of the German economy, showing a significant miss in expectations. The figures for both current conditions and the six-month outlook indicate a worsening slowdown rather than a temporary issue. We are already seeing the EUR/USD pair fall below the important support level of 1.0500 due to this news. The disappointment came from the much-anticipated US-EU trade partnership announced in June, which has not benefitted key German industries as expected. We should pay attention to the struggles in the chemical and pharmaceutical sectors, which were specifically noted as under pressure. For example, shares of chemical giant BASF have already dropped 4% in pre-market trading, reflecting this negative sentiment. This weak sentiment follows last week’s report on German industrial production, which showed a 1.2% decline in July. With two consecutive quarters of negative growth looking more likely, we are confirming that a technical recession is underway. This situation resembles the industrial fragility seen in 2023 when the economy struggled to recover from earlier energy price shocks. In reaction to these developments, we are considering buying put options on the DAX index to prepare for further declines ahead of the September expiry. Implied volatility on these options has increased from 18% to over 22% in the past hour, indicating the market is adjusting to higher risk. Traders holding long positions in German stocks should think about using these options to protect against ongoing sell-offs. For currency traders, shorting the Euro against the US Dollar remains the best strategy to capitalize on this specific weakness in Germany. This data poses a challenge to the European Central Bank’s recent efforts to signal a pause in its easing measures. We can anticipate renewed discussions about further rate cuts before the year ends, which would likely put additional pressure on the euro.

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