Euro, EUR/USD, Trade War – Talking Points
- EUR/USD may undergo selling pressure if Eurozone PMIs incite ECB rate cut bets
- Euro decline may be amplified from the resurrection of EU-US trade war hostilities
- What were key takeaways from ECB minutes, are officials optimistic or distressed?
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EUR/USD may continue its descent if Eurozone PMI data underwhelms and supports the case for future liquidity provisions from the European Central Bank (ECB). Resurrected US-EU trade war tensions will likely cast doubt over the ability of the manufacturing sector to recover from its wounds amid the US-Sino conflict. EUR/USD failure to break above key resistance opens door to key support at 1.1022.
Eurozone Economic Data May Catalyze EUR/USD Selloff
Preliminary Eurozone manufacturing PMI data for November is expected to show a 46.4 figure, slightly higher than the prior 45.9 print though still in contractionary territory; any reading above 50 indicates an expansion. Services is anticipated to a 52.4 reading while the composite is pegged at a 50.9 estimate, with the precious reports at 52.2 and 50.6, respectively.
The comparatively stronger growth in the services sector relative to the contraction in manufacturing helps keep the composite PMI index above the 50 mark. However, if industrial production continues to slide, it could eventually bleed into services and draw down the overall performance in the composite index. The spillover in industrial weakness has been a growing concern among central bank policymakers.
ECB Minutes: Main Takeaways
ECB Vice President Luis de Guindos said that a recession in the Eurozone was “very improbable”, though he did note that risks to the region’s economic prosperity remain tilted to the downside. The central bank’s meeting minutes also noted that no-deal Brexit concerns have waned, and this has helped buoy sentiment and restore cautious confidence in producers.
However, officials noted that they expect growth in the Eurozone to remain subdued for a prolonged period of time. The slowdown may be amplified by external factors like the US-China trade war as a result of the global chilling effect it has on world growth. However, now that the EU and US may not enter their own direct trade-related conflict, the prospect of upside inflationary pressure and economic activity is put at risk.
EUR/USD Technical Analysis
As forecasted, EUR/USD failed to break above key resistance at 1.1073 and is now trending lower, opening the door to test support at 1.1022. Traders may wait for another daily close in the red before adding to their short positions, though the more prudent ones might wait until the pair clears support at 1.1022 with follow-through. A break below there could mark the resumption of EUR/US’s dominant downtrend.
EUR/USD – Daily Chart
EUR/USD chart created using TradingView
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
