Euro slips as German, eurozone PMIs edge lower

EUR/USD has posted considerable losses in the Friday session. Currently, the pair is trading at 1.1298, down 0.53% on the day. There was disappointment as German and eurozone PMIs lost ground in November, pointing to weaker activity in the services and manufacturing sectors. In the U.S, the focus is on consumer spending. Retail sales and core retail sales are expected to drop sharply, with forecasts of 0.2% and 0.1%, respectively.

Thursday was uneventful for the euro, as there were no surprises from the ECB policy meeting on Thursday. As expected, the ECB maintained interest rates at 0.00% and reiterated that the bank’s bond-purchase scheme would terminate in December. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. At a press conference after the meeting, ECB President Mario Draghi said the stimulus scheme had not only boosted growth in the eurozone, but was “in some cases the only driver of this recovery”. At the same time, Draghi warned that eurozone growth was weakening. The ECB downgraded its growth forecasts for the eurozone – from 2.0% in September to 1.9% in December for 2018, and from 1.8% in September to 1.7% in December in 2019. Draghi added that headline inflation is also expected to drop in the coming months, due to weaker economic conditions.

In the U.S, weak inflation levels are another sign that the economy is slowing down. CPI dropped to 0.0% in November, down from 0.3% a month earlier. This marked the lowest level since May. Core CPI remained pegged at 0.2 percent. The weak readings can be attributed to falling oil prices, which has led to a sharp decline in gasoline prices. On an annualized basis, inflation gained 2.2 percent in November, down from 2.5 percent in October. With the U.S. economy showing signs of slowing down, and the global trade war taking a bite out of the global economy, inflation could continue to head lower as we head into 2019. This has led to a reassessment at the Federal Reserve of monetary policy. Earlier in the year, the Fed was sending messages that it would raise rates three or four times next year. This has been drastically scaled back, with some analysts predicting only one rate hike in 2019.

Friday (December 14)

• 2:00 German WPI. Actual 0.2%

• 3:15 French Flash Manufacturing PMI. Estimate 50.7. Actual 49.7

• 3:15 French Flash Services PMI. Estimate 54.8. Actual 49.6

• 3:30 German Flash Manufacturing PMI. Estimate 51.8. Actual 51.5

• 3:30 German Flash Services PMI. Estimate 53.4. Actual 52.5

• 4:00 Eurozone Flash Manufacturing PMI. Estimate 51.9. Actual 51.4

• 4:00 Eurozone Flash Services PMI. Estimate 53.4. Actual 51.4

• 8:30 US Core Retail Sales. Estimate 0.2%

• 8:30 US Retail Sales. Estimate 0.1%

• 9:15 US Capacity Utilization Rate. Actual 78.6%

• 9:15 US Industrial Production. Estimate 0.3%

• 9:45 US Flash Manufacturing PMI. Estimate 55.1

• 9:45 US Flash Services PMI. Estimate 54.7

• 10:00 US Business Inventories. Estimate 0.6%

Saturday (December 15)

• 5:30 ECB President Draghi Speaks

EUR/USD Technical

EUR/USD was flat in the Asian session and has dropped considerably in European trade

• 1.1212 is providing support

• 1.1300 has switched to a resistance role following strong losses by EUR/USD on Friday

• Current range: 1.1212 to 1.1300

Further levels in both directions:

• Below: 1.1212, 1.1120 and 1.0992

• Above: 1.1300, 1.1434, 1.1553 and 1.1685