Eurozone PMIs Plunge

The Euro has come under heavy selling pressure today as the latest set of eurozone PMIs were seen undershooting forecasts this morning. Along with a drop in both the French and German readings, the August eurozone manufacturing PMI came in at 44.8 vs 45.7 expected, down from 45.8 prior. At this level, manufacturing in the single customs unions was seen hitting 9 months lows. Similarly, the services PMI was seen at 50.5, below 52.3 expected and down from 52.9 prior. At this level, the services sector grew at its slowest pace in 7 months. Notably, new business was seen falling for the first time in seven months while the employment component hit its lowest level since August 2023. The composite PMI for August was seen at 48.9 vs 50.5 expected, down from 51 prior, marking the weakest private sector activity in seven months.

ECB Easing Expectations

The data has raised fresh fears over the health of the eurozone economy and put focus back on eurozone easing expectations. While the ECB downplayed the prospect of a further rate cut next month, market projections are shifting now in response to this data. Notably, data out of Germany, the largest eurozone economy, was seen falling for a fourth straight month, hitting its lowest levels in 7 months. Expectations for a further rate cut in October have now jumped to almost 80% from just over 30% as of last week. While this narrative remains in place, EUR looks vulnerable to further weakness near-term, particularly on any fresh data weakness ahead of that meeting.

Technical Views

EURUSD

The rally in EURUSD has stalled for now into the 1.1126 level with the market potentially forming an interim double top at the level. While below 1.226, focus is on a deeper correction towards 1.0937 and a retest of the broken bear trend line. This will be a key pivot for the market with bulls needing to defend the area to keep focus on an eventual break higher. Below, 1.0724 comes into view next.