EURUSD – Weak PMIs deliver another blow to EU sentiment

Once again, the EURUSD encountered another volatile week. Comments at the beginning of the week from ECB President Mario Draghi indicating any extension to its Asset Purchase Program could include government bonds opened the doors for QE speculation, sending the Eurodollar to the lower 1.24s as a result. The Eurodollar then recovered its losses on Tuesday and rallied above 1.25 following the latest German ZEW Survey surpassing forecasts. Caution was shown among investors ahead of the FOMC Minutes release on Wednesday, which resulted in the Eurodollar appreciating as high as 1.2598 through risk appetite. The rally came to a halt there though, with the weakest PMIs in 16 months on Thursday reigniting fears over stagnant economic growth. Comments again from Mario Draghi on Friday hinting that the ECB are ready to act again led to the EURUSD concluding the week around 1.2390.

With the next ECB meeting less than two weeks away, speculation is heightening that the introduction of further stimulus from the ECB will likely encourage investors to price in further action and subsequently, send the Euro lower. Although the pressure is on the ECB to act once again, I maintain a stance that the EU economic problems go beyond ECB policy and could also be linked to reduced global demand for EU products. Optimism that the weaker exchange rate would improve economic fortunes was swept aside by Thursday’s weak PMIs, but I remain upbeat it can help data. The improved German ZEW Survey suggests Europe’s largest economy might be entering the final stretch of the year with some momentum and if the weaker Euro helps German exports (Tuesday), it would represent a chance for the Eurodollar to recover losses.

From a technical standpoint on the Daily timeframe, the Eurodollar is continuing to trade in the same bearish direction it has done for months. If the pair chooses to recover some of last week’s losses, resistance can be found at 1.2418, 1.2426 and 1.2445. If the ECB continue to tease the prospect of more stimulus in less than two weeks, EURUSD support can be found at 1.2374 and 1.2358.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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