Euro edges lower as German PMI misses mark

Welcome to the first trading day of 2022! The euro is slightly lower in the European session, trading around 1.1350.

German Manufacturing PMI misses consensus

Eurozone Manufacturing PMIs for December pointed to growth across the bloc. France and Italy beat the consensus, while Spain and the all-eurozone PMIs were within expectations. The one disappointment was Germany, which came in at 57.4. This missed the forecast of 57.9 and was down from the November reading of 57.9. Supply constraints have hampered Germany’s manufacturing sector and the pace of expansion has slowed significantly since the summer of 2021, when we were seeing readings in the mid-60s.

Germany will release Retail Sales on Tuesday. This key gauge of consumer spending has struggled, posting back-to-back declines. Another decline in December would raise a red flag and investors could sour on the euro.

Omicron cases continue to skyrocket, and although it is considered milder than other Covid variants, the sheer number of infected people is putting a heavy strain on health care systems worldwide. The US, Greece and other countries have shortened their isolation periods for infected people, and this could help cushion the economic blow from Omicron.

We are likely to see a surge in Omicron cases in the coming weeks, but the critical question for the markets is how sick are those people who are infected. Market sentiment has been high despite the soaring numbers, on the assumption that Omicron is not as severe as previous variants and will not cause a severe economic downturn. If we don’t see a surge in hospitalisation rates and a return to lockdowns, I would expect risk sentiment to remain elevated.

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 EUR/USD Technical

• EUR/USD has support at 1.1303. Below, there is support at 1.1232
• There is resistance at 1.1456 and 1.1415

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