Eurozone flash Composite PMI unexpectedly falls to 51.9 in December
Eurozone's flash HCOB Composite PMI has unexpectedly come in lower at 51.9 in December due to weakness in both manufacturing and the services sector. The overall businss output was expected to come in at 53.0, higher than 52.8 in November.
The Services PMI drops to 52.6, whileit was estimated higher at 53.9 from the prior reading of 53.6. The Manufacturing PMI declines at a faster pace to 49.2.
"Economic growth slowed at the end of the year due to a slight contraction in the manufacturing sector and weaker momentum in the service sector. The weaker performance is primarily attributable to German industry, where the downturn intensified. In France, on the other hand, there are signs of a cautious recovery in industry, although a single monthly figure should not be overrated. However, the service sector, which had expanded last month, is stagnating there, while Germany's service companies saw another solid rise in activity. All in all, the runway into the new year seems pretty unstable," Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB), said.
FX Implications
The Euro (EUR) is slightly under pressure following the release of the German/Eurozone PMI data. As of writing, the EUR/USD pair trades subduedly near 1.1745.
This section below was published at 08:40 GMT to cover the release of the German HCOB PMI data for December
According to flash estimates, the Composite PMI in the German economy falls sharply to 51.5 in December, from 52.4 in November. The overall business activity rose moderately due to a slowdown in the service sector output and a sharp decline in the manufacturing sector.
The Services PMI has come in at 52.6, lower than estimates of 52.8 and the prior release of 53.1. The Manufacturing PMI has unexpectedly contracted at a faster pace to 47.7. Economists expected the data to come in higher at 48.5 from 48.2 in November.
"What a mess, one might exclaim in view of the further downturn in the manufacturing sector. For the second month in a row, the headline manufacturing PMI has fallen deeper into sub-50 contraction territory, and for the first time in ten months, production is also declining. The latter comes as no surprise, as order intakes had already slumped in November. This trend has now continued, which does not bode well for the start of next year," Dr. Cyrus de la Rubia, Chief Economist at HCOB, said.
Market reaction
EUR/USD falls sharply following the release of the German flash PMI data. The pair is marginally down to near 1.1745 as of writing.
This section below was published at 03:56 GMT as a preview of the Germany/Eurozone preliminary September HCOB PMIs data for December.
German/ Eurozone flash PMIs Overview
The preliminary German and Eurozone flash HCOB Purchasing Managers’ Index (PMI) data for December is due for release today at 08:30 and 09:00 GMT, respectively.
Amongst the Euro area economies, the German and the composite Eurozone PMI reports hold more relevance, in terms of their impact on the European currency and the related markets as well.
The flash Composite PMI for Germany is expected to come in slightly weaker due to a slowdown in the service sector activity. However, the overall business output is anticipated to hold above the 50.0 threshold, a level that separates expansion from contraction.
Preliminary Services PMI is seen at 52.8, lower than 53.1 in the final reading from November. The Manufacturing PMI is expected to have contracted again, but at a slower pace, to 48.5 from the prior reading of 48.2.
The forecast for the Eurozone flash Composite PMI shows that the overall private sector output increased at a faster pace in December due to an improvement in both manufacturing and the services sector activity. The Services PMI is seen at 53.9, up from 53.6 in November. Like the German Manufacturing PMI, the manufacturing activity in the old continent has contracted too, but at a moderate pace to 49.9 from the previous release of 49.6.
How could German/ Eurozone flash PMIs affect EUR/USD?
EUR/USD trades flat around 1.1750 as of writing ahead of the German/Eurozone PMI data. The 20-day Exponential Moving Average (EMA) at 1.1658 slopes higher and stays below the spot, keeping the short-term bias upward and offering initial support. A sustained hold above the 20-day EMA would preserve bullish momentum.
The 14-day Relative Strength Index (RSI) at 70.22 is near overbought levels, flagging stretched upside.
Measured from the 1.1920 high to the 1.1468 low, the stop wobbles around the 61.8% retracement at 1.1747. Going forward, a break above the same would unlock the 78.6% retracement at 1.1823. On setbacks, the rising 20-day EMA is expected to support the move. However, a close beneath it would soften the tone that might make it vulnerable towards the round-level figure of 1.1600.
(The technical analysis of this story was written with the help of an AI tool)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
