Eurozone PMI Remains in Contraction Territory; Inflation Expected to Fade
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Today, the financial trading markets will mainly be focused on the PMI reports, which will be released throughout the day. So far, the EU and UK have released their PMI figures, while the US has theirs scheduled for this afternoon. In addition, the Fed will release its Meeting Minutes this evening. Still, it may have a limited effect on the market, as hikes will likely depend on November’s employment and inflation figures.
EU and UK PMI Readings
The Eurozone confirmed its Purchasing Managers Index, but German and French PMIs are considered the most influential. Out of 6 PMI reports, five came in higher than expected, and four were higher than the previous month. Only the French Services PMI declined from 51.7 to 49.4. The PMI reports for the Eurozone were generally positive, but the decline in French data now means the whole EU is seeing PMI figures below 50.0, which is negative.
Moving onto the United Kingdom, both the Service and Manufacturing PMI read higher than predictions. Both PMI reports remained the same as the previous month, instead of declining to 48.8 for services and 46.2 for the manufacturing sector. So far, the EUR/USD has reacted negatively to the news, declining by 0.35%, while the GBP/USD has seen only a slight increase.
EUR/USD
The EUR/USD has maintained a clear upward trend with “higher highs and lows” since the start of yesterday’s US Trading Session. However, the decline over the past 90 minutes is the first time the exchange rate has dropped to a lower low.
Therefore, traders closely monitor whether the price will attempt a correction back to 1.0220. Nonetheless, the price remains above most average price movements so far.EUR/USD price chart.
Even though the PMI figures were mainly better than expected, they still signal a dim economic outlook, and the market has negatively reacted. Over the remainder of the week, EUR/USD will likely be pricing in potential new interest rate hikes from the Federal Reserve and the European Central Bank. Investors will also primarily focus on price and trend analysis due to the lack of releases scheduled for the rest of the week and early next week.
Currently, a 50 basis point hike seems likely, and investors have priced in a 0.50% hike between 1.04810 and 1.02180. Most economists advise the European Central Bank will most likely mimic the Federal Reserve, as it has done on many occasions in the past. The head of Bundesbank, Joachim Nagel, advised the market yesterday that he would back a decline to a 0.50% rate hike.
Investors also follow the developing story surrounding the EU price cap on Russian oil. According to Bloomberg, the EU seems to be taking a slightly softer stance. The plan has been amended to affect oil loaded before Dec. 5 but can be unloaded before Jan. 19. However, even with this amendment, most economists believe the Eurozone will struggle with energy prices from January to March.
This afternoon, investors will mainly focus on the US PMI reports and the Meeting Minutes from the Fed. US PMI readings are expected to be similar to that of October.
