• JPY and USD gained more than 4.00% in Q3 against the single currency.
  • Among G10 currencies, EUR was the second-worst performer in Q3 against the USD.

The common currency has started developing a base between 1.0900-1.0925 after a straight fall from 1.1100 levels. All near-term indicators have remaining bearish which restrict the headroom in the data-packed week ahead. Behind the past two-week central bank meetings, traders shift the focus back to macro data.

In data terms last week, EA PMIs printed below estimates whereas data from Germany supported the common currency not to fall further.

Data review:

Flash Eurozone Manufacturing PMI at 45.6, which was significantly less than 47.0 in August. 83-month low. Flash Eurozone Services PMI Activity Index at 52.0 was less than 53.5 in August. 8-month low.

Sentiment among German executives has improved slightly, Ifo reported. The ifo Business Climate Index rose in September from 94.3 to 94.6 points. This increase was due to a better assessment of the current situation. However, the outlook for the coming months deteriorated again. The downturn is taking a breather, the official release reported.

During the Q3 the manufacturing PMI remained in contractionary territory especially September PMIs were printed worse than expected. HSBC said, “Eurozone activity data surprised negatively in Q3”. Besides ECB delivers a 10bps deposit rate cut whereas launched an open-ended QE.

Small than expected depo cut was disappointed, but open-ended QE has been the hope for lower euro. At the press conference, Draghi has emphasized the importance of the fiscal stimulus.

Data preview: Final EZ PMs and NFP data. 

Behind the past two-week central bank meetings, traders shift the focus back to macro data. The EA focus this week will be on the Final PMI readings and NFP report. The brand new week going to start with the PMI readings and ends with the big data non-farm payroll. After last week’s weak Manufacturing and Service PMI data, the financial markets are expecting a weak NFP data.

  • Andreas Steno Larsen and Martin Enlund from Nordea markets said “Both of the employment sub-indices in the Manufacturing PMI and the Service PMI printed below 50 in the Markit Survey for the first time since 2009. If these employment PMIs have any decent prediction power on the NFP (we are far from convinced that they have), then a sub-50 reading should be seen as a hint of a negative monthly job number.”

Turning to the EA data, all eyes on the Flash PMI data. ING said, “All eyes on service sector strength.”

  • In a note to clients ING also said, “The September PMI showed a marked weakening in service sector activity, increasing worries that the manufacturing downturn is starting to spill over to the wider economy.”
  • Commenting on the PMIs IHS Markit said, “In Europe, PMI updates will be eyed for signs of recession risk in Germany, Italy, and the UK, the latter also seeing updated estimates of second-quarter GDP.” And also said,” Final eurozone numbers will be closely watched after the flash release showed the economy almost stalling in September.”

TECHNICAL VIEW

EURUSD was under pressure in Q3 due to weak EA macro data, a strong dollar, and dovish ECB. In the same period, the price action marked for the first time slipped below 1.1000 level since 2017.

The EURUSD extended the losses last week as mixed global clues hurt sentiments. The month-end positioning data suggests short interests have reduced and is expected to find a weekly bottom between 1.0850-1.0780 levels lowered from 1.0900-1.0850. Overall month-end positioning data suggests medium sell USD.

  • CitiFX Month-End rebalancing reported, “The net FX impact from the signal is poised to be selling of USD against GBP and EUR at month-end.”
  • BNP Paribas reported in the Macro Quant Strategy report “The FX Fund Position Tracker components turning more bullish on the EUR.”

 The combination of dovish ECB and trade concerns between US-China offers limited head-room towards 1.0970-1.1000 and 1.1100 into the Q4 2019.

 

Flipside, as we highlighted in our previous weekly report, the A-B-C corrective structure still suggest the pair is open to falling further around 1.0850 and 1.0780 levels.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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