EUR/USD Hits 9-Week High!

EUR/USD may hit 1.20 this week, buy EUR/USD?

Strong euro zone economic data to support euro

The optimism of euro zone economic outlook is getting more obvious. Various economic indicators showed the region’s growing speed has reached the fastest in past 10 years.

The composite PMI survey signalled an upside risk to the markets’ forecast for GDP growth. The composite headline rose to 57.5 in November from 56 in October, surpassing the consensus forecast of 56. It was a result of the manufacturing number increasing to 60 from 58.5 and the services number advancing to 56.2 from 55. The average of 56.8 for October to November stands above that of 56 for July to September. The latest figures were consistent with GDP growth accelerating by 0.1% from the pace of 0.6% recorded in 3Q.

PMIs sub-indices showed the euro area’s demand is also accelerating. The average new orders figure for November and October, which are usually considered as the forward-looking component, stood nearly 1% above July to September. The story is similar for the output prices figure, signalling inflation is starting to face some upward pressure. This could induce the ECB to tighten as early as next year.  

On German political developments, its opposition leader agreed to meet Chancellor Angela Merkel this week to discuss forming her next government, edging her closer to ending weeks of political deadlock in Europe’s biggest economy. The topic will be “the situation after the end of exploratory talks between CDU, CSU, FDP and Greens”. The date will be further announced with no confirmation at this moment.

German companies did not seem worried on the recent political deadlocks as they appeared to be confident that a favourable solution will be found. The business confidence index by Germany's Ifo research institute climbed to a record high in November. Most companies foresee a new government in place alongside with the economy remaining strong in weeks or months to come. This political uncertainty doesn’t seem to have any impact on the economy so far.

Inflation data in the region is also going to be released. We are not expecting much changes in the headline inflation rate for the monetary union though country readings may show a bit of acceleration for Germany and Spain and a slight slowdown for France. Such results should continue to favour a strong euro.

Our Picks

EUR/USD –  Slightly bullish.

This pair could rise towards 1.20 this week amid strong economic outlook.

U30USD (Dow Jones) – Slightly bullish.

Equities markets trading at record levels shows that the money managers’ enthusiasm for an earnings expansion as economies continue to grow. Dow index could rise towards 24000 this week.

XAU/USD (Gold) – Slightly bearish.

Price may fall towards 1283 this week.

Top News This Week (GMT+8 time zone)

Euro Zone: Flash CPI y/y. Thursday 30^th November, 6pm.

We expect figures to come in at 1.5% (previous figure was 1.4%).

US: ISM manufacturing PMI. Friday 1^st December, 11pm.

We expect figures to come in at 58.8% (previous figure was 58.4%).

 

Fullerton Markets Research Team

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