EUR/USD higher after mixed European releases

• German Services PMI rises slightly
• Eurozone retail sales decline 1.2%

The euro has stabilized on Wednesday and is in positive territory. In the North American session, EUR/USD is trading at 1.0519, up 0.50%.

Germany’s Services PMI expands slightly

Germany is the largest economy in the eurozone. Once a global powerhouse, the economy has weakened and finds itself in the unfamiliar position of being a laggard in the bloc. Recent economic releases haven’t been encouraging, but there was some good news from the services sector today. The Final Services PMI rose to 50.3 in September, up from 47.3 in August and above the preliminary estimate of 49.8. Still, the outlook for services activity remains soft as demand has been weak and service providers remain pessimistic. The Eurozone Services PMI remained in contraction territory with a reading of 48.7 in September. This marked a small rise from 47.9 in August and was higher than the consensus estimate of 48.4.

Eurozone retail sales slide 1.2%

Eurozone retail sales declined 1.2% m/m in August, compared to a revised 0.1% m/m decline in July and below the consensus estimate of -0.3% m/m. The decline was broadly based and will likely weigh on third-quarter GDP. On an annualized basis, retail sales fell by 2.1%, following a 1.0% decline in July. This marked an eleventh straight monthly decline. European consumers are grappling with 6% inflation and real wage growth was negative in the second quarter. Against this backdrop, it’s no wonder that consumers are cutting back on consumption.

ECB President Christine Lagarde signalled that the central bank is likely done with its rate-tightening cycle. Lagarde said in a speech today that interest rates were at a sufficiently restrictive level to bring inflation back down to the ECB’s 2% target.

The ECB raised rates at last month’s meeting but hinted strongly that interest rates have peaked. The central bank is counting on elevated rates to continue filtering through the economy and cooling down growth and inflation. The ECB has raised rates ten straight times in the current tightening cycle, but the last decision was a dovish hike and a pause at the October 26^th meeting would not be a surprise.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0489. Above, there is resistance at 1.0572
• There is support at 1.0404 and 1.0321

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