- EUR/USD met contention near 1.0970 on Monday.
- German, EMU PMIs came in below expectations.
- Draghi: region’s growth momentum has slowed markedly.
The sentiment around the shared currency remains depressed at the beginning of the week, although EUR/USD has managed to rebound from earlier multi-day lows in the 1.0970/65 band.
EUR/USD offered on PMIs, Draghi
Spot accelerated the leg lower below the key support at 1.10 the figure on Monday after flash PMIs in the core euro area (Germany, France and EMU) came in below estimates, falling deeper into the contraction territory and adding to the already deteriorated outlook in the region.
In addition, President M.Draghi said the growth momentum in the bloc has slowed markedly, beyond the bank’s assessment. The economic slowdown follows trade jitters, protectionist policies and geopolitical effervescence, according to Draghi. Furthermore, Draghi reiterated once again the need for a stronger contribution of fiscal policy, while the bank is ready to adjust all of its instruments in case of need.
Across the pond, Markit’s flash manufacturing PMI came in at 51.0 for the current month, surpassing estimates. Later in the day, speeches by FOMC’s Williams, Daly and Bullard should keep the attention on the buck.
What to look for around EUR
EUR is facing extra downside pressure at the beginning of the week and threatens to extend the move to 2019 lows in the 1.0920 region, as any recovery in the German economy appears to take longer than expected in light of the recent flash PMIs. The unremitting slowdown in the region justifies the looser for longer monetary conditions by the ECB and adds to the probability that the German economy could slip into technical recession in Q3. By the same token, occasional rallies in the pair are seen as corrective only and unsustainable. Adding to this gloomy scenario, potential US tariffs on imports of EU cars remain well on the table, while persistent uncertainty around Brexit adds to the downbeat outlook.
EUR/USD levels to watch
At the moment, the pair is losing 0.25% at 1.0989 and a break below 1.0966 (low Sep.23) would target 1.0925 (2019 low Sep.3) en route to 1.0839 (monthly low May 11 2017). On the flip side, the initial hurdle emerges at 1.1033 (21-day SMA) followed by 1.1109 (monthly high Sep.13) and finally 1.1163 (high Aug.26).
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