Eurozone PMI Remains in Contraction Territory But Inflation Expected to Fade

Today, the financial trading markets will mainly be focused on the PMI reports, which will be released throughout the day. So far, the EU and UK have released their PMI figures, while the US has theirs scheduled for this afternoon. In addition to this, the Fed will release its Meeting Minutes this evening, but it may have a limited effect on the market, as hikes will most likely depend on November’s employment and inflation figures.

EU and UK PMI Readings

The whole Eurozone confirmed their Purchasing Managers Index, but German and French PMIs are considered the most influential. Out of 6 PMI reports, 5 came in higher than expected and 4 were higher than the previous month. Only the French Services PMI declined from 51.7 to 49.4. The PMI reports for the Eurozone were generally positive but the decline in French data now means the whole EU is seeing PMI figures below 50.0, which is negative.

Moving onto the United Kingdom, both the Service and Manufacturing PMI read higher than predictions.  Both PMI reports remained the same as the previous month, instead of declining to 48.8 for services and 46.2 for the manufacturing sector. So far, the Euro has reacted negatively to the news, declining by 0.35%, while the GBP has seen only a slight increase.

EUR/USD

The EUR/USD has maintained a clear upward trend with “higher highs and lows” since the start of yesterday’s US Trading Session. However, the decline over the past 90 minutes is the first time the exchange rate has dropped to a lower low. Therefore, traders are monitoring closely to determine whether the price will attempt a correction back to 1.0220. Nonetheless, the price remains above most average price movements so far.

EUR/USD 30-Minute Chart on November 23rd

Even though the PMI figures were mainly better than expected, they still signal a dim economic outlook and the market has negatively reacted so far. The price over the remainder of the week will most likely be focused on pricing in potential new interest rate hikes from both the Federal Reserve and the European Central Bank. Investors will also largely focus on price and trend analysis due to the lack of releases scheduled for the rest of the week, and early next week.

Currently, a 50 basis point hike seems to be likely, and investors have priced in a 0.50% hike at between 1.04810 and 1.02180. Most economists advise the European Central Bank will most likely mimic the Federal Reserve, as it has done on many occasions in the past. The head of Bundesbank, Joachim Nagel, also advised the market yesterday that he would back a decline to a 0.50% rate hike.

Investors are also following the developing story surrounding the EU price cap on Russian Oil. According to Bloomberg, the EU seems to be taking a slightly softer stance. The plan has been amended to affect oil loaded before the 5th of December but can be unloaded before the 19th of January. However, even with this amendment, most economists believe the Eurozone will struggle with energy prices from January to March.

This afternoon, investors will mainly be focussed on the US PMI reports and also the Meeting Minutes from the Fed. US PMI readings are expected to be similar to that of October.

Summary:

• Out of 6 PMI reports for the Eurozone, 5 came in higher than expected and 4 were higher than the previous month. However, all 6 remain below the vital 50.0 level.
• For the United Kingdom, both the Service and Manufacturing PMI read higher than predictions.
• The EUR/USD may look to correct back to 1.0220 based on wave analysis.
• The EU takes a slightly softer stance against Russian oil imports, allowing barrels to be unloaded by mid-January.