After a rocky start to the trading week, EUR/USD remained steady, despite weak Manufacturing and Service PMIs out of Germany and the Euro-zone. Also, the Moody’s rating agency reduced Germany’s creditworthiness, although it maintained the country’s triple-A rating. Today’s publications include a string of PMI releases out of Germany, France, the Euro-zone and the US.
- Asian session: Euro/dollar dropped below the 1.21 line, consolidating at 1.2088. The pair is unchanged in the European session.
- Current range: 1.20 to 1.2144.
- Below: 1.20, 1.1876 and 1.17.
- Above: 1.2144, 1.22, 1.2288, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2623.
- The pair has broken through the clear historic separator of 1.2150.
- 1.20 is the last line of support before the post crisis low of 1.1876.
Euro/Dollar steady after weak Euro-zone PMI data – click on the graph to enlarge.
7:00 French Flash Services PMI. Exp. 47.7 points. Actual 50.2 points.
7:00 French Flash Manufacturing PMI. Exp. 45.6 points. Actual 43.6 points.
7:30 German Flash Services PMI. Exp. 50.1 points. Actual 49.7 points.
7:30 German Flash Manufacturing PMI. Exp. 45.3 points. Actual 43.3 points.
7:30 Euro-zone Flash Services PMI. Exp. 47.3 points. Actual 47.6 points.
7:30 Euro-zone Flash Manufacturing PMI. Exp. 45.3 points. Actual 44.1 points.
12:45 US Fed Chairman Bernard Bernanke Speaks.
13:00 US Flash Manufacturing PMI. Exp. 52.1 points.
14:00 US HPI. Exp. 0.5%.
14:00 US Richmond Manufacturing Index. Exp. 0 points.
- Weak European PMIs raise concerns: A host of PMI data was published on Tuesday, and most of it disappointed the markets. French Services PMI was the worst in over three years, and German Services and Manufacturing PMIs came in below the market forecast. As well, Euro-zone Manufacturing had its poorest performance since May 2009. The markets attach a lot of significance to PMI readings, and we could see the euro drop as a result of the weak data.
- Moody’s gives Germany a thumbs-down: On Monday, Moody’s reduced the outlook on Germany, the Netherlands and Luxembourg from stable to negative. The highly-respected credit agency stated that countries such as Germany might have to increase their support and bear the economic burden of struggling countries such as Italy and Spain. Although Moody’s maintained Germany’s triple-A rating, this move will likely hurt confidence in the German economy and in the euro.
- Is Germany catching the Euro-zone flu?: Germany continues to be the workhorse of the Euro-zone economy, and in return, Berlin often calls the shots regarding financial matters, such as setting the bailout terms for the weaker members. However, there are worrying signs that the troubles plaguing the EZ are affecting the German economy, and the Moody’s downgrade may not be such a surprise. This includes a host of weak German economic data, diminishing confidence in the economy, and weak global growth. A Germany in decline could spell disaster for the struggling Euro-zone.
- New concerns over possible Grexit: Fears of a Greek exit from the Euro-zone are again surfacing. Greece is already running into difficulty meeting its bailout obligations, such as debt-to GDP targets, and this could jeopardize the bailout funds. Germany continues to take a tough line with Greece, as German Vice Chancellor Philipp Roesler warned that Greece must adhere to austerity measures in order to receive bailout funds.
- Spain may need Sovereign Bailout: Spain is due to receive some EUR 100 billion in rescue funds to bolster Spanish banks and some regional governments. However, the markets are now worried that the situation in Spain is so acute that a sovereign bailout (i.e. the country itself) will be needed instead. Underscoring the crisis, Spain’s Treasury Minister Cristobal Montoro warned that the recession would last into 2012, and GDP would fall 0.5% in 2013, reversing the original estimate of a 0.2% increase. Meanwhile, Spanish 10-year bonds hit a record high of 7.37%, well above the 7% threshold which is widely considered unsustainable.
- US weak releases continues: The US continued to produce weak data, as there was a host of poor data late last week. Unemployment claims jumped, Existing Home Sales hit a two-year low, and the Philly Fed Manufacturing Index fell below the market estimate. Clearly, the US road to recovery continues to be a slow and bumpy one. Weak US data could actually boost the dollar and hurt the euro, as investors may opt to stick to safe haven currencies such as the dollar.