Euro Gains Traction Despite Disappoiting PMI’s

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Despite a worse than expected composite purchasing manager’s index reading in the Euro zone the EUR/USD was able to gain traction holding support levels as positive momentum gained steam. Inflation expectations in Germany remained steady, but the negative print did not pushed Eurozone spread significantly wider.

The EMU composite PMI unexpectedly dropped to 51.4 from 52.1 in the previous month, with the manufacturing reading falling to 50.4 from 50.6 and the services number to 51.3 from 52.3. Eurozone spreads widened, which suggests that the weaker data has not boosted expectations for additional ECB action in December to a significant extent.

German PMIs disappointd, with the manufacturing reading falling back to 50.0 from 51.4 and the services number dropping to 52.1 from 54.4. Expectations had been for a slight improvement at least in the manufacturing reading, especially after the stronger than expected rebound in the ZEW number earlier in the week and the fall back in manufacturing to the 50-point no change mark will rekindle concerns about the strength of the Eurozone’s largest economy and the negative impact on the rest of the Eurozone.

The German PPI inflation remained steady at -1.0% year over year in October, in line with the consensus. Prices were down 0.2% month over month, driven by a renewed decline in energy prices as well as a further drop in prices for non-durable consumer goods. The annual rate excluding energy dropped to -0.1% year over year from 0.1% year over year on a sharp decline in annual food price inflation. Food prices have been falling on an annual basis for three months now, but these price declines are largely driven by base effects and weather conditions compared to last year, and prices for capital goods and durable consumer goods continue to rise, which adds to the view that there are no signs of a deflationary spiral.

The EUR/USD was able to hold support near the 10-day moving average at 1.2483. Resistance is seen near 1.2750. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a buy signal this week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

The post Euro Gains Traction Despite Disappoiting PMI’s appeared first on Forex Circles.

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