EUR/USD: the general situation in the Eurozone economy is still far from stable


Composite index of business activity in the manufacturing sector (from Markit Economics) across the Eurozone, published this morning, did not reach the forecast value of 52.6, being worse than the previous December value of 53.3 and amounting to 52.4. A reading above 50 is positive for the EUR and indicates an acceleration in business activity. However, its relative decline and a worse-than-expected indicator usually have a negative impact on the quotes of the European currency.

Similar indicators published a little earlier for France, whose economy is the second largest in the Eurozone after the German one, also slightly spoiled the overall picture. France's Composite Purchasing Managers' Index (PMI) fell to 52.7 in January from 55.8 in December, according to data released by IHS Markit (the forecast was 54.5).

A Markit Economics report shows a slowdown in the growth rate of activity in the French economy at the beginning of 2022 to a 9-month low, which is also reflected in pan-European indicators. IHS Markit says supply shortages continue to weigh on activity, especially in the manufacturing sector, and the effects of mounting inflationary pressures, exacerbated by rising labor costs and rising energy prices, are only exacerbating the overall negative situation.

Restrictive measures and consumer caution are also reflected in the weakening PMI index for the Eurozone services sector. This indicator, published today, was 51.2 against the forecast of 52.2 and 53.1 in December.

Thus, the Markit Economics report presented this morning shows that the overall situation in the Eurozone is still far from a stable recovery and growth of its economy.

Later this week, preliminary data on German GDP for the 4th quarter will be published, which is expected to fall to -0.2% from a +1.7% increase in the 3rd quarter of 2021. It is likely that this will also have a negative impact on the euro and the EUR/USD pair.

However, the focus of attention of traders and market participants this week is the Fed meeting. The interest rate is widely expected to remain at 0.25% at this meeting, which ends on Wednesday. However, during the period of publication of the rate decision, volatility may rise sharply throughout the financial market, primarily in the US stock market and in dollar quotes, especially if the rate decision differs from the forecast, or unexpected statements are received from the Fed management.