Euro Consolidates Ahead of ECB Announcement, German PMI Dips to Contraction Territory


Traders will be focusing on the ECB, which is scheduled to meet on Thursday, especially after the renewed decline in headline HICP inflation to 0.3% that left the door open for more stimulus. However, most confidence indicators improved in November and the ECB is still busy focusing on the implementation of the measures already announced. Hence, these factors suggest that the ECB could disappoint QE hopes and maintain a wait and see stance. This would help buoy the Euro as the yield differential between European and US rates stabilize. Draghi will likely keep the door very wide open for a broadening of the ECB’s asset purchase program, and will likely repeat Constancio’s comments that an assessment of whether more action is needed will take place early next year.

The Eurozone manufacturing PMI was lowered to 50.1 from 50.4 reported initially. The German manufacturing reading was revised down to 49.5, indicating contraction as investment remains weak and exports are hit by the tensions with Russia. The purchasing manager’s index readings in November are somewhat in contrast to national survey findings, as well as the overall ESI reading for the Eurozone, which on the whole improved in November.

The Italian reading also came in below expectations, while the French number was revised up to a still weak 48.4 from 47.6 reported initially. This means the big three Eurozone countries are now seeing contracting manufacturing activity, if the PMI are to be believed, although other national business survey indicators, most notably the IFO, seem more upbeat than the PMIs suggest.

The technical picture shows that traders await the ECB and are consolidating positions ahead of Thursday’s announcement. Short term resistance is seen near the 10-day moving average at 1.2480 while support is seen near the recent lows at 1.2360. The commodity channel index is printing a reading of -40 which reflects consolidation.

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