EUR/USD – Weak Start to the Week
EUR/USD – Weak Start to the Week
The EUR/USD pair began the week with declines, driven by macroeconomic data releases and political tensions within the eurozone.
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Macroeconomic Data Impact
On Monday, the final reading of the **HCOB Manufacturing PMI** for the eurozone in November was released, showing a figure of **45.2**, in line with expectations. This continues to signal weakness in the industrial sector, contributing to euro depreciation.
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Political Issues in France
Political turbulence in France further weighed on the euro. Key developments included:
- Budget Dispute: Prime Minister Michel Barnier faced potential no-confidence votes as the far-right National Rally (RN) party, led by Marine Le Pen, threatened to oppose the government’s budget proposal.
- Concessions: The French government dropped plans to reduce medication reimbursements to secure RN support.
- Market Reaction: French bond yields rose, with the 10-year yield briefly surpassing Greece’s. The CAC 40 stock index fell 1.1% in early trading.
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ECB Comments
Statements from European Central Bank members also hinted at potential monetary easing:
- Olli Rehn** and **Yannis Stournaras suggested further rate cuts are likely in December due to persistent inflation concerns.
- Martin Kazaks mentioned the possibility of discussing larger rate cuts, though he acknowledged significant uncertainty.
---
Seasonality and EUR/USD
Historically, December has been a favorable month for the euro against the dollar, driven by reduced market liquidity and year-end position adjustments. However, under the current market conditions, with weak eurozone data and robust U.S. performance, seasonality may not be sufficient to reverse the prevailing bearish trend for EUR/USD.
---
USD Stability
The U.S. dollar remains relatively stable, supported by strong macroeconomic fundamentals and comments from Federal Reserve officials.
- Fed Officials’ Remarks:
- John Williams: The NY Fed President noted that monetary policy remains restrictive and emphasized data dependence. He expects inflation to gradually decline to 2% and forecasts U.S. GDP growth of around 2.5% in 2024.
- Christopher Waller: The Fed Governor expressed support for a December rate cut, citing a balanced labor market and concerns about inflation stagnating above 2%.
- Raphael Bostic: The Atlanta Fed President stated that inflation is on track to reach the 2% target and emphasized the strong footing of the U.S. economy while remaining open to future policy adjustments.
- U.S. Economic Data:
- ISM Manufacturing PMI (November): Increased to 48.4, above expectations but still indicating contraction.
- Construction Spending (October): Rose by 0.4%.
---
Outlook for EUR/USD
Despite last week’s gains, the long-term trend for EUR/USD remains bearish. The eurozone's economic data continues to underperform, adding pressure on the ECB to accelerate rate cuts.
Meanwhile, the U.S. economy is on a stable path toward a "soft landing," supported by strong labor markets and steady growth. While seasonal factors might provide temporary support for the euro, the current market dynamics suggest limited potential for sustained EUR/USD appreciation.
The EUR/USD pair began the week with declines, driven by macroeconomic data releases and political tensions within the eurozone.
---
Macroeconomic Data Impact
On Monday, the final reading of the **HCOB Manufacturing PMI** for the eurozone in November was released, showing a figure of **45.2**, in line with expectations. This continues to signal weakness in the industrial sector, contributing to euro depreciation.
---
Political Issues in France
Political turbulence in France further weighed on the euro. Key developments included:
- Budget Dispute: Prime Minister Michel Barnier faced potential no-confidence votes as the far-right National Rally (RN) party, led by Marine Le Pen, threatened to oppose the government’s budget proposal.
- Concessions: The French government dropped plans to reduce medication reimbursements to secure RN support.
- Market Reaction: French bond yields rose, with the 10-year yield briefly surpassing Greece’s. The CAC 40 stock index fell 1.1% in early trading.
---
ECB Comments
Statements from European Central Bank members also hinted at potential monetary easing:
- Olli Rehn** and **Yannis Stournaras suggested further rate cuts are likely in December due to persistent inflation concerns.
- Martin Kazaks mentioned the possibility of discussing larger rate cuts, though he acknowledged significant uncertainty.
---
Seasonality and EUR/USD
Historically, December has been a favorable month for the euro against the dollar, driven by reduced market liquidity and year-end position adjustments. However, under the current market conditions, with weak eurozone data and robust U.S. performance, seasonality may not be sufficient to reverse the prevailing bearish trend for EUR/USD.
---
USD Stability
The U.S. dollar remains relatively stable, supported by strong macroeconomic fundamentals and comments from Federal Reserve officials.
- Fed Officials’ Remarks:
- John Williams: The NY Fed President noted that monetary policy remains restrictive and emphasized data dependence. He expects inflation to gradually decline to 2% and forecasts U.S. GDP growth of around 2.5% in 2024.
- Christopher Waller: The Fed Governor expressed support for a December rate cut, citing a balanced labor market and concerns about inflation stagnating above 2%.
- Raphael Bostic: The Atlanta Fed President stated that inflation is on track to reach the 2% target and emphasized the strong footing of the U.S. economy while remaining open to future policy adjustments.
- U.S. Economic Data:
- ISM Manufacturing PMI (November): Increased to 48.4, above expectations but still indicating contraction.
- Construction Spending (October): Rose by 0.4%.
---
Outlook for EUR/USD
Despite last week’s gains, the long-term trend for EUR/USD remains bearish. The eurozone's economic data continues to underperform, adding pressure on the ECB to accelerate rate cuts.
Meanwhile, the U.S. economy is on a stable path toward a "soft landing," supported by strong labor markets and steady growth. While seasonal factors might provide temporary support for the euro, the current market dynamics suggest limited potential for sustained EUR/USD appreciation.
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💲 To keep up to date with all my activities I invite you to visit my Telegram 💲
💲 t.me/Investmatez 💲
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