The Euro continued to strengthen throughout the overnight session, breaking out of its previous range to hold above 1.4750. The EUR/USD rose for the second consecutive session as employment conditions improved in Germany. Unemployment fell to 7.6% from 7.8% in July, while the ILO unemployment index slipped to 7.3% from a revised 7.4% reading in June. Both figures crossed the wires much better than what market participants were anticipating, helping to fuel bullish sentiment for the Euro.

German unemployment fell 40,000 in August, which was much larger than 10,000 decline expected by economist. The huge drop led the unemployment rate to fall to a fresh record low of 7.6%, while the ILO unemployment rate dipped to a six year low of 7.3%. Amid the unexpected improvement, the Euro-Zone continues to face downside growth risks as economic activity weakens in Germany. A Bloomberg report showed that the German retail PMI contracted for the third consecutive month and fell at its fastest in 8 months, as the index fell to 44.1 from 46.4 in July. Fading growth prospects paired with stalled inflation may lead the ECB to drop their hawkish outlook, and could leave the door open for a potential rate cut early next year. Earlier this week however, ECB Council Member Axel Weber fostered mixed sentiment for interest rate expectations going forward as he said there was no scope for a rate cut going forward, and said talks of cutting the benchmark interest rate is still ‘premature.’

The U.K. CBI Trade Report crossed the wires worse than expected, falling to a new record low of -46 from -36 in July, and led the British pound to fall more than 50 basis points. A breakdown of the survey showed that orders decline to -56 from -37 in the previous month, while the sales component slid to -43, which was much larger than the fall to -37 expected by market participants. Mounting downside growth risks may push the Bank of England to cut the interest rate ahead of schedule as the economy is on the brink of a recession, and may spur bearish sentiment for the GBP/USD

The US economic docket is scheduled to show an upward revision to GDP, which may spur bullish sentiment for the US dollar. Second quarter growth figures are expected to be revised higher to 2.8% from an advanced reading of 1.9% as a result of the fiscal stimulus plan initiated earlier in the year. Strong growth numbers should help to ease recessionary concerns for the world’s largest economy, and may fuel expectations for the Fed to hike the benchmark interest rate later in the year.

Jamie Saettele is a Technical Currency Analyst for FXCM.