EURUSD fell 0.67% over the hour as preliminary Eurozone PMI forecasts were much weaker than expected, increasing pressure on the ECB to continue with its accommodative monetary policy.
This is not the first time that a preliminary PMI that deviates significantly from expectations has driven European currency markets, rivalling the US employment data in terms of its impact on EUR/USD.
France’s boom was short-lived. The composite PMI forecast for September fell to 47.4 from 53.1 the previous month, well below the 52.7 forecast. The manufacturing PMI has been hovering around 44 for the past three months and has only exceeded 50 once in the past two years. The services sector fell below 50 to 48.3, its lowest level since March.
Estimates of business activity for September showed German manufacturing activity slowing at its fastest pace in 12 months, continuing its first decline since May, dropping to 40.3. The services sector also reversed a decline four months ago but remains officially in expansion territory above 50.
Manufacturing activity is contracting at its fastest pace since December. The services sector, at 50.5, is expanding at its slowest pace since February, but is still growing.
The negative data surprise led EURUSD to extract new downward momentum, briefly dropping below 1.11. The pair has been unable to stabilize above 1.12 over the past month and if the current decline continues it could result in a double top formation with a near-term downside target of 1.10 and a more distant target of 1.09. Preventing the euro from weakening against the dollar in the long term will be Fed policy. The FOMC cut interest rates by 0.5% last week and current forecasts call for more aggressive easing than the ECB.
