Euro yawns after soft German data

The euro has started the week quietly and is trading just below the 1.13 level.

German Factory Orders slide

It wasn’t a great way to begin the new trading week, as German Factory Orders contacted in October.  News orders fell by -6.9% m/m and -1.0% y/y, respectively. The weak numbers are a result of health restrictions in Germany, which has been hit by a fourth wave of Covid and is seeing a sharp uptick in the number of Covid cases. Investors shrugged at the weak data, as Germany’s manufacturing sector is in decent shape. The November Manufacturing PMI came in at 57.4, which points to significant expansion. Still, if the pandemic worsens and the government responds with more severe restrictions, manufacturing could lose steam.

Eurozone inflation is running at a 4.9% clip, but some investors have expressed concern that ECB President Christine Lagarde has been too sanguine about the jump in inflation. Lagarde has said that inflation is under control and a result of temporary factors such as high energy prices, but many market participants are sceptical of her stance. Some ECB members have stated that inflation may not ease as quickly as expected. This view was reiterated last week by Luis de Guindos, vice-president of the ECB. There is growing pressure on the ECB to reduce its monetary stimulus, but the upcoming meeting may be a sleeper, with Lagarde signalling that there won’t be any major changes at next week’s policy meeting.

In the US, non-farm payrolls was very disappointing, with a reading of 210 thousand new jobs. This was nowhere near the consensus of 534 thousand. The soft reading was cushioned by a sharp drop in the unemployment rate, which fell from 4.6% to 4.2%. This was a result of a household employment report which showed some 1.1 million jobs at been created. If you’re confused about the conflicting data, no worries – the expert are as well. These two employment reports often diverge sharply, and the true state of the labor market lies somewhere in the middle.

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 EUR/USD Technical

• EUR/USD has support at 1.1236 and 1.1163
• The next resistance lines are 1.1383 and 1.1457

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