Euro remains depressed after unimpressive PMIs; struggles near 1.1200 vs recovering USD

EUR/USD turns lower for the second straight day amid a combination of negative factors.
Mostly disappointing Eurozone PMIs undermine the Euro amid France’s debt concerns.
Fed hike bets and geopolitical risks lift the USD, further exerting pressure on spot prices.

Haresh Menghani FXStreet

The EUR/USD pair attracts sellers for the second straight day in reaction to mostly disappointing Eurozone PMIs, trading near the lower end of the weekly range, around the 1.1200 mark during the first half of the European session on Friday.

The preliminary estimate showed that private sector business activity in the Eurozone expanded at a slower pace in October, with the HCOB Composite PMI falling to 51.9 from 53.1 in the previous month. This comes on top of softening growth in Germany – the Eurozone's largest economy – and an unexpected contraction in France's private-sector business activity. Apart from this, deep sovereign debt and political crisis in France continue to undermine the shared currency, which, along with the emergence of some US Dollar (USD) buying, exerts some pressure on the EUR/USD pair.

Federal Reserve (Fed) officials recently signaled that there is no urgency to raise interest rates, though traders are still pricing in around an 80% chance that the central bank will raise borrowing costs again in December amid oil-driven inflation risks. Adding to this, persistent geopolitical uncertainties, stemming from a further escalation of tensions in the Middle East, help the safe-haven Greenback to stage a modest recovery from a three-week low, touched on Thursday. This contributes to the offered tone surrounding the EUR/USD pair as the focus shifts to next week's key central bank event.

The Fed is scheduled to announce its decision at the end of a two-day meeting next Wednesday. In the absence of updated economic projections, traders will scrutinize the accompanying policy statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference. Adding to this, the Advance US Q3 GDP and the US Personal Consumption Expenditures (PCE) Price Index, due next Thursday, will drive the USD and the EUR/USD pair.

Economic Indicator

HCOB Composite PMI

The Composite Purchasing Managers’ Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging private-business activity in the Eurozone for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for EUR.

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