EUR/USD – eurozone manufacturing stuck in contraction

The euro has edged up on Monday and has stopped a nasty three-day slide in which the euro slipped 1.2%. In the North American session, EUR/USD is trading at 1.1066, up 0.18% on the day. With US markets off for Labor Day, the dollar is unlikely to show much movement today.

Eurozone, German manufacturing slump continues

The eurozone manufacturing PMI was unchanged in August for a third straight month at 45.8, just above the market estimate of 45.6. The 50 level separates contraction from expansion. The PMI has been mired in contraction since July 2022, a result of the ECB’s tighter monetary conditions and the surge in energy prices due to the Russia-Ukraine war.

The eurozone economy is showing signs of improvement but that hasn’t boosted manufacturing. Germany, the largest economy in the bloc, is in even worse shape, as the manufacturing PMI eased to 42.4 in August, down from 43.2 in July. The weak manufacturing sector has pushed the German economy into contraction and an improvement in global demand hasn’t stopped the bleeding, with no end in sight.

Germany faces another test on Tuesday, with the release of retail sales. The German consumer has responded to the weak economic climate by cutting back sharply on spending. Retail sales have declined in nine of the past eleven months, dampening economic activity.

The US has not escaped the woes of the manufacturing sector and Tuesday’s ISM Manufacturing PMI is expected to point to contraction. The PMI has posted only one month of expansion since October 2022, although the markets are expecting the PMI to improve to 47.5 for August, up from 46.8 in the previous release.

EUR/USD Technical

• 1.1029 is providing support, followed by support at 1.1011
• There is resistance at 1.1062 and 1.1080

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