ECB may be forced to offer additional support as PMI data worsens
The prospect of the European Central Bank offering struggling eurozone countries additional support rose on Thursday, after European PMI manufacturing data came in much worse than economists had been predicting for this month, causing the single currency to move lower against the U.S Dollar and the Japanese yen currency immediately after the softer than manufacturing data was released.
The German manufacturing PMI contracted for a fifth consecutive month, with the industrial powerhouse of Europe posting a dismal 44.3 reading during the month of May. The softer than expected PMI figures continued to highlight the ongoing weakness in the German manufacturing sector as the trade dispute between the United States and China hampers the nations export growth.
The ongoing stability inside the European service sector remained the bright spot of Thursday’s PMI reports, as French and German service sector PMI data easily outperformed the lagging manufacturing sector. German IFO data disappointed, as it highlighted that the German export dynamic remained weak as German companies reported record levels of uncertainty and declining business sentiment.
Hopes had been high that the bout of economic weakness inside the eurozone had only been temporary during the last quarter of 2018 and the start of this year, following the latest EU GDP data, which showed a pick-up in growth in Spain, France, and Italy. Yesterday’s soft PMI data points to a more problematic decline, which may lead to the European Central Bank President Mario Draghi striking a more dovish tone at the next policy meeting in June and possibly offering some more fiscal support.
The euro currency goes into the weekend on the fairly shaky ground against the greenback and the Japanese yen due to the European elections being held over the weekend. The euro has scope to turn even lower as it remains both fundamentally and technically weak at the moment, especially given that the euro currency remains sensitive to geopolitical events.
EUR/USD Daily Mountain Chart | Source: ActivTrader
EUR/USD bulls have staged a comeback from the 1.1100 level, although the weekly price close will be key as many traders may start to vacate long positions ahead of the weekend’s election results. Key support for the EUR/USD is located at the 1.1060 and 1.1000 levels, while major resistance for the EUR/USD pair is currently found at the 1.1265 and 1.1290 level.
Written by Nathan Batchelor, External Analyst, ActivTrades
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