On Friday, the euro recorded new monthly lows against the greenback in the early European session following the release of a flurry of disappointing flash PMI readings for the eurozone by IHS Markit. Later that day, in the early American session, the EUR/USD currency pair extended its losses following the report of robust US advance retail sales data for November. After touching a low of 1.1269, the EURUSD pair closed at 1.1300.
Euro selloff triggered by a contraction in the French manufacturing industry
After the announcement of numerous flash PMI prints from across the eurozone, all of which missed expectations, the EURUSD pair collapsed to new lows.
In December, for the first time in two-and-a-half years, France’s private sector contracted, with both manufacturing and services activities declining, amid reports of widespread interference to business due to the continuing ‘Yellow Vests’ or ‘gilets Jaunes’ anti-government demonstrations, survey data from IHS Markit showed on Friday.
The Composite Purchasing Managers’ Index, or PMI, combining manufacturing and services, dropped to a 30-month low of 49.3 from 54.2 in the earlier month. The economists predicted a moderate decrease to 54. A PMI of less than 50 suggests a reduction in activity.
The latest decline was driven by the services sector. The French flash services PMI dropped from 55.1 in November to a 34-month low of 49.6 in December. Economists were expecting a score of 54.8.
The French flash manufacturing PMI fell to a 27-month low of 49.7 in December, from 50.8 in the earlier month. The reported figures were lower than analysts’ expectation of 50.7. The manufacturing output index fell sharply to 44.7 from 50 in November, marking the steepest decline in 44 months.
In economic news from Germany, the Preliminary PMI Manufacturing Index came in at 51.5 for December, representing a 33-month low, as against an anticipated reading of 52. In November, the Index reading was 51.8. The PMI Services index declined to seven month low of 52.5 from 53.3 in the previous month. Economists expected Manufacturing Index and Services Index to be 51.8 and 53.4, respectively.
Overall, the flash Eurozone Services PMI Activity Index declined to a 49-month low of 51.4 in December, from 53.4 in November. The figures missed expectations of 51.9. Likewise, flash Eurozone Manufacturing PMI hit a 34-month low of 51.4 in December, from 51.8 in November. Economists had expected a reading of 53.4.
In the US, the Commerce Department reported that the retail sales grew 0.2% m-o-m in November, following a 1.1% gain in the earlier month. Economists had expected the retail sales to increase by 0.1%.
Notably, sales in the control group subset, which is sometimes used to gauge underlying consumer demand, increased 0.9% and exceeded by twice the projections.
Ward McCarthy, a chief financial economist for Jefferies LLC, said: “It unquestionably points to a consumer that continues to be upbeat and happy to spend money.”
Therefore, fundamentals favor the EURUSD downtrend to continue.
Technically, the EURUSD pair is moving along a descending channel as shown in the image below. The on-balance volume is making new lows. Therefore, we can expect the decline to continue.
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