EUR/USD: Some corrective weakness in the EUR in the short run – Scotiabank

Eurozone PMI data were soft all round this month. German and French data all reflected weaker or slowing activity, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR dips as weak PMIs support mild contraction outlook

“French Services slumped after the Olympic boost faded and both French and German Composite readings are below 50 now, putting the preliminary Eurozone Composite data at 48.9, down from 51 in August and well below the 50.5 expected. Yields slipped, driving spreads against the USD wider as markets priced in marginal more risk of an October ECB rate cut (10bps priced in).”

“The Bundesbank’s monthly report last week already acknowledged that a mild contraction was likely already underway in Germany but the dip was not expected to be long-lasting. Policymakers may continue to focus on inflation rather than growth concerns for now.”

“Friday’s stall in the EUR and today’s losses—so far—may pave the way for some corrective weakness in the EUR in the short run. A low close for spot today would form a bearish 'evening star' pattern on the daily chart, strengthening EUR resistance in the 1.12 area and perhaps prompt some corrective EUR losses back to the 1.10 support area”