EUR/USD crawls higher, unfazed by soft German IFO Business Climate

EUR/USD is trimming losses on Monday, following a sharp decline last week. The pair is trading right below 1.1530 after bouncing at 1.1490 on Friday, favoured by a moderate risk appetite in an otherwise calm start of the week. Data released by the German IFO revealed that the business climate deteriorated in November, but the impact on the Euro has been minimal so far.

The positive market mood triggered by the dovish comments by the New York Federal Reserve (Fed) President, John Williams, continues driving markets on Monday, underpinning the common currency’s recovery. Williams cheered investors on Friday, refreshing hopes of further interest rate cuts in the coming months, which sent the US Dollar Index (DXY) down from multi-week highs.

Regarding macroeconomic data, the US preliminary S&P Global Purchasing Managers’ Index (PMI) and the Michigan Consumer Sentiment Index showed fairly positive readings for November, in contrast with the Eurozone PMIs, which revealed that manufacturing activity contracted against expectations.

Daily digest market movers: Euro picks up on risk appetite

• The Euro (EUR) is regaining some losses on Monday, favoured by a mild appetite for risk, with European equity markets posting gains. Hopes of a peace deal in Ukraine are contributing to lifting investors’ sentiment, although macroeconomic data is not particularly supportive.
• Earlier on Monday, the German IFO Business Climate eased to 88.1 in November, from 88.4 in October, against the market consensus of a slight improvement to 88.5. The Index measuring the current economic situation improved to 85.6 from 85.6, but the economic expectations deteriorated a whole point, to 90.6 in November from 91.6 in October.
• On Friday the Eurozone preliminary HCOB PMIs revealed an unexpected contraction in the manufacturing sector’s activity, to a level of 49.7 from the previous month’s 50 level, compared to expectations of an improvement to 50.2. The Services PMI ticked up to 53.1 from 53.0 in October, but the Composite Index eased to 52.4 from 52.5 in October.
• Likewise, German Manufacturing activity contracted further in November, with the preliminary HCOB Manufacturing PMI declining to 48.4 from October’s 49.6, while services activity eased to 52.7 from 54.6, well below market expectations of a 53.9 reading, highlighting the soft momentum of the region’s leading economy.
• In the US, the S&P Global preliminary Manufacturing PMI slowed down to 51.9 in November from 52.5 in October, below the 52.0 expected, but Services PMI beat expectations with a 55.0 reading against the market consensus of a steady 54.8 reading. The composite Index rose to 54.8 from 54.6.
• Furthermore, the US Michigan Consumer Sentiment Index improved to 51 in November, from 50.3 in October, exceeding the market consensus of a 50.5 reading. The index measuring the economic expectations also rose, to 51 from 49 in the previous month.
• The impact of the positive macroeconomic figures was offset by Fed William’s comments hinting at the possibility of further monetary easing “in the near term” as, in his opinion, the bank has margin to cut interest rates further without risking its inflation goal.
• Later on the day, European Central Bank President Christine Lagarde is expected to speak about Artificial Intelligence and Education at a forum in Bratislava, Slovakia.

Technical Analysis: EUR/USD remains bearish, with 1.1550 limiting gains

The EUR/USD shows a frail recovery, with the broader bearish trend still in play. The 4-hour Relative Strength Index (RSI) remains below 50, and the Moving Average Convergence Divergence (MACD) indicator has flatlined below the zero level, which suggests that bullish attempts will be short-lived.

Daily highs are at 1.1530 area, below the 1.1550 level, which held bulls on Thursday and Friday. The pair should break that level to confirm a bullish reaction and aim for the November 18 and 19 highs near 1.1600 and to the top of a descending channel from the mid-October highs, which is now around 1.1625.

On the downside, the 1.1500 psychological level remains at a dangerously short distance. Further down, the next targets would be the November 5 lows, near 1.1470, and the mentioned channel support, around 1.1425.