Euro stalls below November’s peak as Eurozone PMI data disappoints

• The Euro pulls back from 1.1010 following weak Eurozone PMIs.
• EUR/USD’s losses remain limited as the US Dollar fails to stage a meaningful recovery.
• The Fed’s dovish pivot is acting as a headwind for the Greenback.

The Euro (EUR) is paring some gains at Friday’s European session, trading at around 1.0960 against the US Dollar, following a rejection at November’s high. The Euro’s retreat came as Eurozone business activity data disappointed, casting doubts on the European Central Bank’s (ECB) hawkish message.

December’s Preliminary HCOB Services PMI fell to 48.1 from 48.7 in November, against expectations of a moderate improvement to 49. The data suggests that the Eurozone’s key services sector’s activity contracted at a faster pace than in the previous month.

Likewise, the Manufacturing PMI remained unchanged at 44.2, when the market anticipated an improvement to 44.6. Any PMI reading below 50 signals contraction.

These figures suggest the weak contribution to the GDP by both sectors. This raises questions about the bank’s ability to keep the interest rates at high levels for a long time, as ECB President Christine Lagarde pledged after Thursday’s monetary policy meeting.

Later today, the US S&P Global PMIs and the NY Empire State Manufacturing Index are expected to come in line with the idea of a soft landing for the US economy, which might add negative pressure on the US Dollar.

Daily digest market movers: Euro rally stalls as Eurozone business activity data disappoints

• The Euro lost pace on Friday after German and French PMI data signaled weaker-than-expected Eurozone PMI figures.
   
• Eurozone preliminary HCOB Manufacturing PMI for December remained steady at 44.2 against market expectations of a 44.6 reading.
   
• Services sector activity deteriorated to 48.1 from 48.7 against expectations of a moderate pick up to 49.
   
• The European Central Bank warned about an uptick in inflation in the near term and played down speculation about rate cuts in the coming months.
   
• The USD remains stuck near recent lows against its main peers, weighed by the idea that the Federal Reserve (Fed) will be the first major bank to start cutting rates.
   
• Futures markets are pricing in a 70% chance of 25 bps cuts at the Fed’s March meeting, up from 40% before the Fed’s Wednesday meeting.
   
• The Fed signaled the end of the tightening cycle and suggested that rate cuts are coming “into view,” which has sent US bond yields tumbling, dragging the US Dollar down with them.
   
• Data from Thursday showed that US Retail Sales increased against expectations of a decline, and that jobless claims fell to their lowest levels since mid-October. The impact on the USD was marginal.

Technical Analysis: Euro fails at 1.1010 with bulls still in control  

The Euro rally from last week's lows near 1.0700 has been capped right at November’s high of 1.1010, and the pair pulled back. The near-term bullish trend is still active as downside attempts remain contained above 1.0955. 

The pair is going through a corrective reversal after reaching heavily oversold levels on intraday charts. Support at the mentioned 1.0955 is closing the path towards the 4-hour 100 Simple Moving Average (SMA) at 1.0879, which would increase the bearish pressure toward last week’s lows at 1.0730.

On the upside, the Euro should breach 1.1010 to regain bullish momentum and aim for the August high, at 1.1060, ahead of the July 24 and 27 high, at 1.1150.