EURUSD, H1
Preliminary October PMI readings disappointed, with the services activity index falling to a 24-month low of 53.3 from 54.7 in September, while the manufacturing output index dropped to a 46-month low of 51.2, down from 52.7. The manufacturing PMI, meanwhile, fell to 51.2 from 52.7. Markit suggested that the flash readings point to the slowest growth rate for over two years, with an export-led slowdown continuing to broaden out into the services sector.
This ties in with the fact that the German economy seems to be hit more than the French economy. New orders growth continues to weaken and manufacturing orders actually declined marginally; the first drop since November 2014. Despite this, the backlog of work rose at a marginally faster pace than in September, although factories reported the second successive drop in backlogs. So far, remaining order levels are sufficient to keep employment growth going, but the rate is slowing down. At the same time, price pressure remains close to a 7-year high. With the weak September reading, Markit now sees overall GDP growth at just 0.3% q/q in the fourth quarter of the year, with forward-looking indicators suggesting that growth momentum could wane further.
Geopolitical trade tensions, as well as Brexit uncertainty, are likely to be part of the negative backdrop, however if there are negotiated solutions, this could imply to a strong rebound in confidence. Still, for now, the balance of risks continues to tilt to the downside and while President Draghi is not expected to reverse the decision to phase out QE by the end of the year, it will keep him very cautious on the timing of rate hikes.
EURUSD is on session lows, bottoming at 1.1406, from 1.1479. Oppositely, European stock markets are trying to move higher, with the GER30 up 0.06% on the day, after the mixed closed on Asian markets. Next immediate Support for EURUSD is at 1.1390 and 1.1370. Resistance is set at 1.1475.
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Andria Pichidi
Market Analyst
HotForex
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