Euro Rises as Investor Sentiment Improves, Dollar and Yen Down

Euro rises broadly today as supported by improvement in investor sentiment, but Sterling and Swiss Franc are lagging behind. Canadian Dollar also follows oil price high, as China appears to be moving further towards reopening. Australian Dollar is also firm. But Yen and Dollar are on the weaker side on positive market sentiment.

Technically, while Euro does strengthen, the momentum is not too convincing yet. For now, EUR/CHF’s rise from 0.9720 still looks more like a corrective move, as the second leg of the pattern from 0.9953. The cross will need to take out 0.9953 resistance decisively to confirm the underlying bullishness in Euro.

In Europe, at the time of writing, FTSE is up 0.30%. DAX is down -0.51%. CAC is down -0.57%. Germany 10-year yield is down -0.001 at 1.853. Earlier in Asia, Nikkei rose 0.15%. Hong Kong HSI rose 4.51%. China Shanghai SSE rose 1.76%. Singapore Strait Times rose 0.26%. Japan 10-year JGB yield rose 0.0064 to 0.258.

ECB Makhlouf: Premature to be talking about end-point for policy rates

ECB Governing Council member Gabriel Makhlouf said, “To continue on our path to bring inflation back to our 2% target, I see a 50 basis-point increase in interest rates as the minimum needed at our December meeting.”

“We have to be open to policy rates moving into restrictive territory for a period,” the Irish central-bank chief said. “It is premature to be talking about the end-point for policy rates amid the prevailing levels of uncertainty.”

“The justification for the expansion of the balance sheet – too low inflation and the risk of deflation – has ended, and it is time to look at reducing its size,” he said.

Eurozone Sentix investor confidence rose to -21, recession ends before it’s begun

Eurozone Sentix Investor Confidence rose from -30.9 to -21.0 in December, highest since June. Current Situation Index rose from -29.5 to -20.0. Expectations Index rose from -32.3 to -22.0, highest since March.

Sentix said: “The latest sentix economic data improve again and surprisingly significantly. Investors are spreading hope that thanks to mild winter weather, sufficient gas in storage and a possible peak in inflation data, the economic downturn has also passed its zenith.

“Internationally, there are also more moderate tones from the US Federal Reserve, which is holding out the prospect of “only” 50 basis points of interest rate increases in December. And in China, the protests finally seem to point to an end to the restrictive Corona measures.

“So will the recession end before it has really begun?”

Eurozone PMI composite finalized at 47.8, downturn remains only modest

Eurozone PMI Services was finalized at 48.5 in November, down from October’s 48.6. That’s also a 21-month low. PMI Composite was finalized at 47.8, up from prior month’s 47.3. Looking at some member countries, Ireland PMI Composite France dropped to 48.8 and 48.7 respectively, both 21-month low. Germany (46.3), Italy (48.9), and Spain (49.6) were at 3-month high.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “A fifth consecutive monthly falling output signalled by the PMI adds to the likelihood that the eurozone is sliding into recession. However, at present the downturn remains only modest, with an easing in the overall rate of contraction in November means so far the region looks set to see GDP contract by a mere 0.2%.”

Eurozone retail sales dropped -1.8% mom in Oct, EU down -1.7% mom

Eurozone retail sales volume dropped -1.8% mom in October, worse than expectation of -1.6% mom. The volume of retail trade decreased by -2.1% for non-food products and by -1.5% for food, drinks and tobacco, while it grew by 0.3% for automotive fuels.

EU retail sales volume dropped -1.7% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Austria (-4.6%), Croatia (-4.0%) and Belgium (-3.3%). Increases were observed in Luxembourg (+2.6%), Cyprus, Malta and Portugal (all +0.5%) and Spain (+0.4%).

UK PMI services finalized at 48.8, economic contraction rate held steady

UK PMI services was finalized at 48.8 in November, unchanged from October’s reading, lowest since January 2021, and second second consecutive month of contraction. PMI Composite was finalized at 48.2, unchanged from prior month, and the fourth successive month of contraction.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence: “A further economic contraction signalled by the PMI surveys hints at a growing recession risk for the UK. A change of government and its new economic policies may have helped arrested some of the financial market volatility after September’s ‘mini-budget’ but the economic picture remains stubbornly unchanged. ”

The overall rate of economic contraction has held steady compared to October, indicative of GDP falling at a quarterly rate of 0.4%. As such, this is the toughest spell the UK economy has faced since the global financial crisis excluding only the height of the pandemic.

China Caixin PMI services dropped to 46.7, third month of contraction

China Caixin PMI Services dropped from 48.4 to 46.7 in November, below expectation of 48.8. PMI Composite dropped from 48.3 to 47.0, signalling a third successive monthly contraction in business activity. The rate of decline was the strongest since May.

Wang Zhe, Senior Economist at Caixin Insight Group said: “Manufacturing and services activity contracted in varying degrees, with the services sector hit harder by Covid outbreaks…. The prolonged pandemic has battered the economy. While the third wave has led to a softened slowdown on both supply and demand than the previous ones, there has been significant pain in the job market.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0466; (P) 1.0505; (R1) 1.0583; More

Intraday bias in EUR/USD stays on the upside for the moment with focus on 1.0609 fibonacci level. Sustained break there will carry larger bullish implication and target next level at 1.1273. However, break of 1.0427 minor support will indicate rejection by 1.1273, and turn bias back to the downside for 1.0222 support and possibly below.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. However, rejection by 1.0609 will retain medium term bearishness for down trend resumption at a later stage.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 AUD AiG Performance of Construction Index Nov 48.2 43.3
00:00 AUD TD Securities Inflation M/M Nov 1.00% 0.40%
00:30 AUD Company Gross Operating Profits Q/Q Q3 -12.40% -1.50% 7.60% 7.80%
01:45 CNY Caixin Services PMI Nov 46.7 48.8 48.4
08:45 EUR Italy Services PMI Nov 49.5 47.6 46.4
08:50 EUR France Services PMI Nov F 49.3 49.4 49.4
08:55 EUR Germany Services PMI Nov F 46.1 46.4 46.4
09:00 EUR Eurozone Services PMI Nov F 48.5 48.6 48.6
09:30 EUR Eurozone Sentix Investor Confidence Dec -21 -27.1 -30.9
09:30 GBP Services PMI Nov F 48.8 48.8 48.8
10:00 EUR Eurozone Retail Sales M/M Oct -1.80% -1.60% 0.40% 0.80%
13:30 CAD Building Permits M/M Oct -1.40% -2.00% -17.50%
14:45 USD Services PMI Nov F 46.1 46.1
15:00 USD ISM Services PMI Nov 53.5 54.4
15:00 USD Factory Orders M/M Oct 0.00% 0.30%

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