Euro shrugs after eurozone services PMI contracts

The euro is almost unchanged on Wednesday. In the European session, EUR/USD is trading at 1.0506, up 0.02% at the time of writing.

Eurozone Services PMI falls into contraction in November

The monthly eurozone Services PMI reports can be viewed as report cards for business activity and the news wasn’t good in November. The Eurozone Services PMI was revised upwards to 49.5 from 49.2 in the preliminary estimate but was lower than the October reading of 51.6. This marked the first contraction in services since January (the 50 line separates contraction from expansion). The decline in services is especially troubling since Germany, France and Italy, the three largest economies in the eurozone, all weakened in November and contracted.

The weak services PMIs came on the heels of soft manufacturing PMIs, which pointed to deep contraction in the eurozone and in the top three economies in the bloc. The economic outlook is bleak and the European Central Bank is expected to cut rates at every meeting at least through June 2025 in order to kick-start the shaky eurozone economy. ECB President Lagarde will testify before a European Parliament committee later on Wednesday and the markets will be looking for some insights on future rate policy.

The ECB meets on Dec. 12 and the market has priced in a 25-basis point cut. Could policymakers surprise the market with a jumbo 50-bp cut, as in September? An oversized cut is possible but unlikely. ECB Governing Council member Robert Holzmann said in a newspaper interview published on Wednesday that it was “conceivable” that the ECB will cut by 25 bp next week but “not more”. Holzmann added that the rate decision would be determined based on the latest data.

EUR/USD Technical

• EUR/USD has pushed above resistance lines at 1.0505 and 1.0552 and faces resistance at 1.0552
• The next support levels are 1.0480 and 1.0458

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