Weak PMIs suggest no rate hike by ECB
The PMI index is regarded as a reliable economic indicator for the euro area. The index fell to 47.8 points in October. This is down 0.9 points on the previous month. This result is also lower than the market consensus indicated (48.7 points). This means that the index is already below the borderline level of 50 pts. for the 3rd month in a row. The index for the manufacturing sector, at 43.0, also offers no hope of recovery.
The recession in the euro area is becoming more and more pronounced. The economic weakness is not only concentrated in Germany as was the case in the winter half of 2022 - 2023, which was mainly due to high energy prices. The effects of the ECB's aggressive monetary tightening (cumulative 450 bp hike) are now clearly visible.
It is likely that exports will not provide a significant stimulus to the economy of the entire zone. Let us remember that not only the ECB but also other central banks have raised the cost of money significantly, resulting in lower demand. He is also weakening on the part of China.
The Eurozone's Q3 GDP data, which will be released next week, promises to be interesting. Expectations point to a decline of 0.1 per cent compared to Q2 .
Yesterday's data suggests that further rate hikes in Europe are unlikely. Recently, Christine Lagarde spoke on inflation. The ECB chief said that inflation is declining in line with expectations. A pause at tomorrow's meeting could weaken the euro again. If we received an additional , clear end-of-cycle announcement, the euro would certainly come under even more downward pressure.
An inverted head-and-shoulders formation (oRGR) is still visible on the EURUSD chart, which in theory suggests more upside for the currency pair. On Monday, the potential neckline of this formation (1.0630) was broken by the course (only momentarily). Moreover, last week the quotations left the medium-term downward channel. This, of course, is not a certainty of a trend change, but there is, at least from a technical point of view, the possibility of a larger upward correction on the eurodollar.