Market Overview

23 November 2020

Weak PMI Data Couldn't Cook the Euro Goose, in Contrast to the Thanksgiving Turkey

The single European currency was steady above 1.1850 against the U.S. Dollar before noon, and then it even jumped to the 1.19 area despite a set of negative signals from the data presented by IHS Markit. However, it was a widely anticipated bad gift during the current epidemic situation, and so it could not really cook or spoil the real Euro goose. Some virtuous American folks may call it their Thanksgiving turkey, if the Greenback would rise instead of the Euro, in the lead-up to family celebrations in the United States. Just as Thanksgiving itself has been plagued by viral spikes, the U.S. Dollar is not in a playful mood to celebrate even a temporary success during this specially "blessed" year when big gatherings of families are friends will most probably be avoided  in more than half of the U.S. states.

Could the tension ease enough to allow everyone to meet Christmas happily on both sides of the pond in a manner of weeks? Nobody knows the answer. Vaccine hopes feed some forward optimism ahead of time, both in stocks and currencies, as well as even in commodities price sometimes. However, a severe reality is seen to slow all healthy movements down and dampening the investment cycle.

Among all different values of Purchasing Manager’s Indexes (PMI) in Europe, only indicators in the sector of services did a clearly bad turn to the 41.3 points value after 46.9 just a month ago. In fact, any level below 50 means a contraction, and the report was based on surveys of about 600 business executives in private sector companies. As a result, the composite sector for the whole Euro area was only at a 45 points level today after 50 in October. But the Eurozone manufacturing PMI was strong at 53.6 points, that is just 1.2 points lower than a month ago, and the series of manufacturing data above the 50 landmark has been seen to send an encouraging message for the eighth month in a row.

At the same time, the industrial pace looks excellent in Germany, where the PMI reading showed a great 57.9 level even in November. Thanks to this excellent result, the German composite PMI was also relatively high at 52.0 points. The manufacturing output index remained elevated at 62.7, but down from its October’s peak of 65.1. That is the first correction for seven months. But in France, the industrial indicator is only at 49.1 points, so that the service indicator happened to be only at 38.0 points. In part, these are industrial figures that help the Euro hold onto gains or even keep climbing, but this factor is supplemented by the general conviction that it could be safe to buy U.S. Dollars to invest some money in U.S. Treasury bonds or some stocks in New York.

Longer-time business expectations about the coming 12 months recovered most of the upset tendency seen in October and has now reached the second highest value since February. Manufacturers were especially upbeat, with confidence rising to the strongest since March 2018, and even service firms became a little more optimistic about the year ahead.

It seems to be a kind of prevailing belief in the financial world that there is a lemon now, but it could be squeezed in a few months to provide a sweet lemonade. The Greenback's column of the drink would be liberally diluted with the U.S. Federal Reserve's "money printer" by much more than it would be done by the European Central Bank with the Euro fraction in the same glass. Also, a mixed bitter-sweet drink was served to the dining table from the U.K. kitchen, with the manufacturing PMI at 55.2 points, the services PMI at 45.8 points and the composite value at the 47.4 level. However, the Sterling rallied up to 1.3380 at some point and kept the gains above 1.3350 after several hours, as a lengthy Brexit chatter continued to get a positive boost on a final deal. prospect as media reports suggested that 95% of the agreement was done. Still, many experts noted the remaining 5% would be the most difficult part with both parties still far apart from the issues of adjudication of any trade conflicts that may occur.

"The European Parliament is already preparing for an extra plenary session between Christmas time and New Year's Eve to give it consent to a possible post-Brexit trade deal with the UK, according to several EU officials and diplomats. It is likely to be held on December 28, to give EU governments the opportunity to have the very last say, as foreseen by the bloc's procedures, before the end of the U.K.'s Brexit transition period on December 31", Florian Eder and Zoya Sheftalovich wrote in a Politico article entitled "Happy Brexmas". The currency market and the options market are essentially pricing in the expectations that a deal could be reached in the course of December. The upside in the pair may be limited to the 1.35 figure, even if a formal deal is announced. But a temporary movement could throw the price even to 1.38 or 1.40 on a wave of a generally weaker U.S. Dollar. "Brexmas" news plus increased risk appetite may also lead EUR/USD higher but for now an August's high at 1.2010 is the nearest spatial reference above the current prices, while the 1.16-1.19 range has been stable since then.

The last moves of the Euro and the British Pound are also well-supported by fresh highs of the year in the New Zealand Dollar and the Australian Dollar. The Aussie has been holding near its peak values since August after the release of the Australian manufacturing PMI at 56.1 and service PMI at 54.9 point level. The Kiwi was supported by 28% growth of retail sales in New Zealand in Q3, 2020. Both countries were the least damaged internally by the coronavirus, and their economies suffered mainly from the decline in foreign trade.


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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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