(01 October 2019 ) DAILY MARKET BRIEF 2:EUR in despair amid weakening data

(01 October 2019 ) DAILY MARKET BRIEF 2:EUR in despair amid weakening data

1 October 2019, 13:19
Jiming Huang
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The recent series of negative data releases hit the single currency hard, which trades at May 2017 range against the greenback, pointing to a quarterly drop of over -4%. Not only does the European Central Bank limited room of action for monetary easing plays a major role in that trend, but also the publication of poor manufacturing PMI data earlier last week as well as fears of a recession in the German economy. Investors’ attention to Eurozone inflation gauge as well as WTO ruling on EU aircraft subsidy should also strengthen the decline in EUR.

The sudden departure of ECB Executive Board and Governing Council member Sabine Lautenschlaeger following the ECB announcement of a resumption of its asset purchasing program already had its deal of headlines as it confirmed the existing discord among ECB Board members regarding monetary policy, with one third of its nineteen members opposing their vote during 12 September 2019 meeting. Furthermore, trade shocks in Germany remain a key impediment in the bloc, as shown by the release of German manufacturing PMI at 41.7 for September, an historical low while inflation came lower at 1.20% (prior: 1.40%) despite a labor market appearing tight at first sight although the ifo employment barometer indicates a rather weak labor market dynamism for September. Following the issue of Eurozone September CPI data, with both headline and core metrics given at 0.90% (prior: 1%) and 1% (prior: 0.90%) respectively, the EUR is expected to stay under pressure during the course of the week, with upcoming producer prices and retail sales on Thursday likely to disappoint as well. In the meantime, a WTO ruling this week that would give reason to US authorities to slap tariffs of up to $11 billion on EU products should not bode well, as retaliatory measures would probably be taken, paving the way to further tit-for-tat trade actions.

EUR/USD is currently trading at 1.0896 (-5% year-to-date) after closing its biggest quarterly decline since Q2 2018. Approaching 1.0880 short-term.


By Vincent Mivelaz

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