The euro has started the trading week with sharp losses. In the European session, EUR/USD is trading at 1.0466, down 1%.
Eurozone manufacturing depression deepens
The eurozone manufacturing sector continues to decline and is slowing down the eurozone recovery. In November Manufacturing PMI fell to 45.2, down from 46 and in line with expectations. Production, new orders and employment all decreased as weak demand has taken a heavy toll. In Germany, the largest economy in the eurozone, the Manufacturing PMI eased to 43, down slightly from 43.2 in October. The numbers were similarly bad for France and Italy the second and third largest economies in the eurozone. The services sector is also struggling and the eurozone, Germany and France showed contraction in October, with the November data coming out on Wednesday.
The European Central Bank is concerned about the weak economy and has strongly hinted at a rate cut at the next meeting on December 12. ECB President Lagarde will testify before a European Parliament committee on Wednesday and the markets will be looking for some insights on future rate policy.
In the US, the ISM Manufacturing PMI rose to 48.4 in November, up from 46.5 in October and above the market estimate of 47.5. The PMI has posted eight straight months of contraction, with readings below the 50.0 level. We’ll also hear from the FOMC members Weller and Williams, with the Fed meeting on Dec.18-19. The markets are leaning towards a quarter-point cut at the meeting, with a probability of 66%, according to the CME’s FedWatch.
European Central Bank has strongly hinted at a rate cut in December and the November inflation data is unlikely to change those plans. The ECB can point to the monthly decline in the core rate and services inflation and weak economic activity as support for a rate cut.
EUR/USD Technical
- EUR/USD pushed below support at 1.0533 and is testing support at 1.0470. Below, there is support at 1.0361
- The next resistance lines are 1.0642 and 1.0705
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