Euro slips lower on soft German PMIs

EUR/USD has edged lower at the start of the week. In the European session, EUR/USD is trading at 0.9824, down 0.37%.

Manufacturing, services PMI point to contraction

Germany is the locomotive of the Eurozone, and a faltering economy means trouble for the entire bloc. German Service and Manufacturing PMIs remained in contraction territory in September, below the neutral level of 50.0. The Manufacturing PMI fell to 45.7, down from 47.8 (47.0 est). The PMI has declined for a fourth straight month, as high energy costs and weak demand for goods have dampened factory production. German business activity is also struggling, as the Services PMI ticked lower to 44.9, down from 45.0, (44.7 est). The eurozone PMIs are also mired in contraction territory, and with winter coming and no end in sight to the Ukraine war, the PMIs will likely continue to decline in the short term.

ECB expected to hike by 0.75%

The ECB meets on Thursday, with policy makers having to contend not only with a gloomy economic outlook, but also with spiralling inflation, with no sign of a peak. Eurozone CPI jumped to 9.9% in September, up sharply from the 9.1% rise in August. The markets have priced in a supersize 0.75% hike, which would bring the cash rate to 2.0% and will be looking for the Bank to declare its commitment to bring inflation back to the 2% target.

A jumbo full-point increase is unlikely, but a possibility, given that inflation is close to double-digits. Investors will be monitoring the follow-up press conference, and the euro’s movement could well depend on ECB President Lagarde’s message to the markets – a signal that further rate hikes are coming would be bullish for the euro.

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EUR/USD Technical

• EUR/USD is testing support at 0.9814. Next, there is support at 0.9753
• There is resistance at 0.9924 and 0.9985

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