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Euro Faces Headwinds after Weak PMI Data

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Euro Faces Headwinds after Weak PMI Data

On the heels of Wednesday’s Fed Minutes, the dollar gain traction against most major currencies.  Yields moved higher on the news that the Federal Reserve was discussing tapering its bond purchase program prior to employment reaching their target.  The 10-year yield backed up to 2.81%, and a move above 3% would generate headwinds for the US economy.  European manufacturing and service data came in weaker than expected generating additional headwinds for the EURUSD currency pair.

Eurozone business activity softened in October and November.  The EU composite output declined to 51.5 in November from 51.9 and missed expectations, with a slowing of services growth offsetting an increase in manufacturing PMI to a 29-month high of 51.5.

The German data was stronger than expected, with the manufacturing PMI at hitting 52.5, while the service reading rose to 54.5 from 52.3.  French manufacturing contracted to 47.8 from 49.4 and the services fell to 48.8 from 50.2.  Weakness in orders, exports and jobs make for a dim outlook.    Unfortunately, deflationary forces may be increasing in the Eurozone, while growth outside Germany might be experiencing stagnation.  This comes on the heels of the EU GDP data that showed that France is contracting while overall EU growth is barley in the black.

The Euro gained ground after Wednesday large slide.  Support is seen at an upward sloping trend line that connects the lows in September to the lows in November near 1.34.  Resistance is seen near the 10-day moving average at 1.3460.  Momentum has slowed and the MACD is printing near the zero index level.  The spread and the 9-day moving average of the spread have similar readings.  The RSI is printing near 45 which is in the middle of the neutral range.

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