Germany’s import price index for July fell to -0.4%, missing the expected -0.3%. This is down from last month’s level of 0.0%, according to Destatis. Excluding energy prices, import prices still dropped by 0.4% from the previous month. Every sector showed price decreases, with intermediate goods down 0.5%, capital goods down 0.2%, and durable consumer goods down 0.4%.

Deflationary Signal

July 2025’s lower-than-expected import prices indicate a strong deflationary trend for the German economy. It confirms that both global and domestic demand are weaker than anticipated. This raises concerns about a potential recession as we approach the end of the year. This information suggests that the European Central Bank (ECB) may shift towards a softer approach in upcoming meetings. We believe the cycle of rate hikes that dominated late 2023 and 2024 is over. The market is likely to start pricing in rate cuts for early 2026. Traders should keep an eye on derivatives tied to EURIBOR futures, as they will be affected by changes in ECB policy expectations. We see this as a sign of weakness for German stocks, making long positions on the DAX index riskier. Given that Germany’s Q2 2025 GDP growth was just 0.1%, we expect further downward revisions in earnings for major industrial exporters. Using protective put options on the DAX or taking short positions through futures may be a smart strategy.

Negative Euro Outlook

The Euro’s outlook is also negative, as interest rate differences are likely to work against it, especially compared to the US dollar. We have already seen the EUR/USD pair drop below 1.05 in August 2025 due to weak economic data from the Eurozone. We predict this trend will continue, making short EUR/USD futures an appealing position. This situation is reminiscent of 2011-2012, when falling prices preceded a broader economic slowdown and led to ECB intervention. At that time, early signs in German import data indicated increased market volatility. We are preparing for a similar rise in volatility, potentially using options on the VSTOXX index to benefit from expected market fluctuations. Create your live VT Markets account and start trading now.

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