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Eurozone PMI Confirms Cooling Growth; EURUSD Weakness Set to Continue

Eurozone PMI Confirms Cooling Growth; EURUSD Weakness Set to Continue

2018-05-04 09:13:00
Justin McQueen, Analyst
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EURUSD Analysis and Talking Points

  • Eurozone PMI confirms that the Euro-Area growth is slowing down
  • EURUSD unfazed as this is unlikely to have large ramifications on ECB policy, focus on inflation

See our Q2 EUR forecast to learn what will drive the currency through the quarter.

Eurozone PMI Maintains Narrative of Euro-Area Growth Levelling Off

Eurozone final readings for April confirmed that Euro-Area growth has continued to slowdown. The Services PMI fell to 54.7 from the preliminary reading of 55, while the Composite PMI also saw a dip to 55.1 from 55.2. No significant response in the Euro given that these are final readings, however this is another bearish factor that will have to be addressed by the ECB in their next monetary policy meeting (June 14th).

Implications on ECB monetary policy

However, the cooling of Euro-Area growth is from elevated levels, which had been noted by IHS Markit stating that the survey remains indicative of the Eurozone economy growing at a robust quarterly rate of approximately 0.5-0.6%. As such, this could be seen as temporary by the ECB who remain confident that Euro-Area growth is broad based and that risks are roughly balance, subsequently the slight easing of growth would unlikely stall the central banks process of withdrawing stimulus.

Uncertainty Over Inflation

Benign inflation in the Euro-Area continues to be a headache for the ECB, yesterday’s reading saw the headline rate fall from 1.3% to 1.2%, while the core measure fell to 0.7% (lowest since March 2017). Consequently, this may well prompt the ECB to delay the next policy shift to July from previously touted June, while the current bond buying program will most likely be extended to the end of the year. In turn, given that the ECB prefers a softer currency and with an uptrend in inflation yet to be seen, EURUSD weakness may be set to continue.

EURUSD PRICE CHART: DAILY TIME FRAME (OCTOBER 2017- MAY 2018)

Eurozone PMI Confirms Cooling Growth; EURUSD Weakness Set to Continue

Chart by IG

EURUSD Technical Levels

Support - 1.1936 (61.8% retracement of 1.1553-1.2556 rise)- 1.1915 (January 9th low)

Resistance- 1.2050 (200DMA)- 1.2093 (2017 high)

IG Client Positioning Sentiment states that 52.7% of traders are net-long. For full client positioning click here

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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