- Dwindling PMI data weighs on EUR/USD, zone of resistance holds firm
- Risk events: US (Q3) GDP and PCE data, ECB interest rate decision
DWINDLING PMI DATA WEIGHS ON EUR/USD, ZONE OF RESISTANCE HOLDS FIRM
PMI data for Europe continued the trend of weak data, underscoring the challenges faced by the continent as the global growth slowdown unfolds. On Monday a spike in bond market volatility elevated yields and the dollar but on Tuesday that had all been erased.
Looking at EUR/USD, the turnaround was not all that surprising as the pair had tested an area of confluence around 1.0700. Not only is it a psychological number but it also coincided with channel resistance and the 50 simple moving average (SMA).
Into the rest of the week, the focus will be on whether the pair can find support at channel support, failing that, perhaps 1.0520.
EUR/USD Daily Chart Highlighting Area of Resistance
The weekly chart reveals the consistent and brutal selloff that ensued since the September peak, but price action has shown a reluctance for further selling. In recent weeks the pair has traded more sideways and even showed early signs of a reversal which appears less likely now. 1.0516 can be considered a tripwire for a continuation of the longer-term bearish trend.
EUR/USD Weekly Chart
MAIN RISK EVENTS FOR THE REMAINDER OF THE WEEK
The big talking points for the rest of the week include the ECB policy statement and the first look at US Q3 GDP and PCE inflation data.
Implied probabilities from interest rate markets suggest it is almost certain that the ECB will keep rates on hold- a decision made all the more easier after seeing yesterday’s unimpressive PMI figures.
The decline in EUR/USD has the potential to extend tomorrow if US GDP reveals a further economic expansion, an outcome that estimates seem to favor with the US expected to have advanced an annualized 4.1% (based on quarter-on-quarter performance).
Based on the latest CPI data, progress on inflation slowed during the month of September, turning the focus to PCE numbers tomorrow. A potential rise in both data sets could persuade markets to price in a greater chance of another Fed hike in December or even January.