EUR/USD dips to 11-week low

The euro is down for a third straight day on Wednesday. In the European session, EUR/USD is trading at 1.0767, down 0.29% on the day. The euro remains under pressure and has declined 3.3% in October.

Euro PMIs expected to show more of the same

The Eurozone releases the September PMI reports on Thursday, with little change expected. The manufacturing sector is in a prolonged depression and has contracted for 27 straight months. Domestic and international orders have been decreasing while input costs are rising. Business conditions have been worsening and there doesn’t seem to be a light at the end of the tunnel. The market estimate for the Manufacturing PMI is 45.3, compared to 45.0 in August. The 50 level separates contraction from expansion.

The services sector is in better shape, having expanded for seven consecutive months. The growth during this time has been modest and the September market estimate is 51.5, up from 50.5 in August.

The PMIs point to a weak eurozone economy and lower interest rates would provide a badly-needed boost. The European Central Bank cut rates last week, its second quarter-point cut in just five weeks. The deposit rate has been brought down to 3.25% and with inflation largely under control, the ECB is shifting from fighting inflation to boosting economic growth. This likely means further rate cuts before the end of the year.

The Federal Reserve jumped out of the rate-cutting gates in September, delivering a jumbo 50-basis point cut. Inflation dropped from 2.5% to 2.4% in September, closer to the Fed’s 2% target. Employment has become the number one priority and weak job numbers was a key reason why the Fed opted for an oversized cut in September. Fed members have signaled that more cuts are coming before year’s end but these will likely be in 25-bp increments, which is the traditional size of Fed rate hikes and cuts.

EUR/USD Technical

• EUR/USD is testing support at 1.0765. Below, there is support at 1.0737
• 1.0782 and 1.0810 are the next resistance lines

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