EURUSD Pressured as Eurozone PMI Stays in Lower Gear

EUR News and Talking Points

  • EURUSD slipped after Manufacturing PMI fell to 14-month low.
  • Recent soft economic data may suggest increasing downside risks to upcoming ECB meeting.

See our Q2 EUR forecast to learn what will drive the currency through the quarter.

Eurozone PMI Maintains Narrative of Euro-Area Growth Levelling Off

Eurozone flash PMI readings for April showed that growth in the Euro-Area is indeed levelling off. The Manufacturing PMI fell to a 14-month low at 56, which missed expectations of 56.1, while the output index declined to a 17-month low at 55.8. In response to the PMI survey, EURUSD saw a slight move lower to 1.2250 from 1.2265, with the report likely to add to potential downside risks at the upcoming ECB monetary policy meeting on Thursday.

This PMI survey also adds to the slew of soft data points in Germany and the Eurozone in recent weeks, which expects Eurozone GDP to remain at 0.6% for Q2. The latest economic indicators had been acknowledged by President Draghi who stated on Friday Euro-Area growth cycle may have peaked. This has also been reflected in the Citi Economic Surprise Index which is hovering near its lowest levels since mid-2011, a time when the Eurozone was in the sovereign debt crisis.

The Problematic Rising Euro.

The ECB have long desired for a lower Euro as evidenced by remarks in the latest monetary policy minutes release whereby the central bank highlighted potential dampening effect a rising Euro could have on inflation and growth. IHS Markit stated underlying growth has weakened, in part due to exports being hit by the stronger Euro. As such, given the fears of a firmer currency, Draghi and Co. may use Thursday’s meeting to strike a somewhat dovish tone in order to temper Euro gains.

PRICE CHART 1: EURUSD�1-MINUTE TIME FRAME (INTRADAY APRIL 23, 2018)

Chart by IG

IG Sentiment Suggests a Mixed Outlook for EURUSD

You can access the latest IG Client Sentiment Report to see how traders are positioned in the Euro as well as a range of currencies to help you shape your trading decisions.

EURUSD: Retail trader data shows 45.9% of traders are net-long with the ratio of traders short to long at 1.18 to 1. In fact, traders have remained net-short since Apr 06 when EURUSD traded near 1.22841; price has remained unchanged since then. The number of traders net-long is 4.1% lower than yesterday and 18.5% higher from last week, while the number of traders net-short is 2.2% lower than yesterday and 12.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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