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The latest set of PMI numbers for October is only serving to reaffirm an intensifying downturn in the Eurozone as conditions continue to be largely hampered by high inflation and cost-of-living concerns. The prospect of a recession continues to draw closer and the only comfort is really that the weather has been relatively mild for the start of winter, at least for now.
But considering the circumstances, the outlook remains bleak as the ECB is still struggling to deal with high inflation – which is continuing to be a major problem for the economy. Add in the energy crisis and how things are not likely to improve next year and there are serious doubts mounting over how policymakers and lawmakers can find a solution in the months ahead.
The euro may have gotten a bit of a reprieve at the end of last week amid a drop in the dollar but the chart is less than convincing, even if buyers are holding near-term control currently.
EUR/USD is hovering near the lows for the day now around 0.9820 and while there are large option expiries at play for the pair, it’s tough to argue that the path of least resistance is still likely for a move lower.
The divergence between the economic health of Europe and the US is one factor at play – at least in terms of how bad things are progressing – and that just adds to the aggressiveness of either central bank as well. The Fed seems to be the more forceful one in this case and with increasing worries about the state of the euro area economy, doubts are seeping in over whether the ECB can continue with their tightening path.
For now, the 100-hour moving average (red line) and 200-hour moving average (blue line) at 0.9810 and 0.9779 will act as key near-term support levels before we get to the trendline (white line) just below 0.9700. That is the region where buyers will have to put up a defense or risk a further retreat with both the ECB and Fed in focus this week and the next.
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