Euro faces asymmetric risks in the flash PMIs
Nov 21 (Reuters) -The upcoming flash PMIs out of the euro area presents a key risk for EUR/USD. The data had been one of the mains reasons as to why the ECB Governing Council agreed to step up the pace of policy easing. Therefore, should we see a notable deterioration in the latest figures, this could trigger a dovish repricing in favour of a larger cut at the central bank’s policy meeting next month.
Looking into the German PMI figures specifically, risks are asymmetrically skewed to the downside. The German ZEW survey has been the first snippet of data covering the U.S. presidential election and the collapse of the German government coalition, which as a result saw both the current conditions and economic sentiment metrics fall from the prior month as well as miss expectations.
Using this data that goes back to the end of 2021 and comparing it to the German composite PMI, the results are.
If economic sentiment fell, composite PMI was down from the prior month 23 out of 35 times.
If current conditions fell, composite PMI was down from the prior 28 out of 35 times.
If both economic sentiment and current conditions fell – as is the case this month – composite PMI was down 9 out of 10 times.
With this mind, this does raise the risk of a deeper setback in EUR/USD. That said, even if the PMIs were to surprise on the topside, traders are likely to use any rebounds to reload shorts. Risks to the outlook have only increased to the downside for the euro area since the U.S. presidential election and with the pair struggling to maintain a bid above 1.06, this is encouraging for euro bears.
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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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