Oct 04, 2022
VOT Research Desk
Analytical Viewpoint
Market players will obviously be anticipating tomorrow’s services-related PMI data after yesterday’s poor ISM manufacturing PMI reading.
The statistic has some relevance because the services sector makes up the majority of the US economy.
A good beat might stop the EUR/USD rally in its tracks as attention would shift back to Fed rate rises, whilst a weak beat would just exacerbate the weak manufacturing data and could push yields and the currency even lower. There will probably be some volatility following the ECB policy meeting, particularly when the topic of quantitative tightening is raised.
Last but not least, it is anticipated that the US non-farm payroll statistics (NFP) would continue to demonstrate employment growth with an increase of 250k jobs.
The Fed has been able to raise rates due in part to the robust employment market, and if the actual number comes in far higher than projected, the terminal rate, which recently decreased from 4.5% to under 4.4%, may be reprised in a hawkish manner. A hawkish reprising should result in a rise in the dollar and, consequently, a decline in the EUR/USD rate.
THE EURO BENEFITS FROM A SOFTER DOLLAR, BETTER RISK PERCEPTION, AND GBP REVIVAL
The Euro has benefited from the recent uptick in risk sentiment and a weaker currency as markets lower estimates of the Fed’s terminal rate and US Treasury rates decline. Due to its proximity to the continuing conflict in Ukraine and the conflict-related energy crises in the lead-up to the winter, the Euro is often associated with “risk assets.”
However, the positive movement is still restricted inside the longer-term negative trend, as indicated by the descending channel, on the EUR/USD chart. Although prices have increased, there is currently no sign that this is a long-term trend. With concerns about GDP growth, possible gas shortages, inflation that reached 10% in September, rash rate rises, and the remaining prospect of growing peripheral bond spreads, the fundamentals for the Eurozone remain bad.
