EUR/USD: Eurozone industrial activity is stagnating

The short-term bias remained bearish on the EUR/USD, even though the final data from the Eurozone industrial activity indicators held no surprises. The manufacturing PMI came in at exactly 50 points, indicating stagnation in activity. This is perfectly in line with the initial estimates published earlier in the month.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, offers the following insights: "Country-specific data points to a fragile industrial situation in Germany, a recession in the French manufacturing sector, persistent weakness in Italy, and weak growth in Spain. Political tensions in France have not only contributed to falling production levels but have also resulted in a sharp decline in the business outlook index. These poor French performances are having repercussions across the region, weakening demand for goods in other Eurozone countries, of which France is one of the main trading partners."

The US ISM Manufacturing Index, a similar barometer of the quality and dynamism of the secondary sector in the US, will be released at 16:00 (EU time).

The key figure to remember on Thursday is the stability of inflation in the Eurozone, at +2.3% in the preliminary estimates for October, excluding food, energy, alcohol, and tobacco. The consensus forecast was for a very slight decrease to 2.2%.

Last week was heavily focused on monetary policy for currency traders, as the Fed and the ECB held their meetings.

As anticipated by the market, the European Central Bank decided to keep its key interest rates unchanged for the third consecutive time, at 2%.

"As with the meeting last September, the ECB emphasized the resilience of the Eurozone economy, enabling it to face a still uncertain environment in terms of both international trade and geopolitical tensions," comments Alexander Perricard, President of Uzes Gestion.

"At this stage, the ECB confirms the appropriate positioning of its monetary policy in light of the economic environment and the risks involved. The central bank consistently reiterates that it does not follow any predetermined interest rate path and that its future monetary policy decisions will depend on evolving data and their impact on the inflation outlook."

The day before, the Fed implemented a widely anticipated 25-basis-point cut to its key interest rate.

"While navigating by sight, the Fed determined that the slowdown in the labor market was a greater concern than persistent inflation. This position is justified given that employment figures are lagging economic indicators and monetary policy also operates with a certain lag. For October, the Fed therefore preferred to risk a further rate cut rather than wait. What is less consistent, however, is the unusual diversity of the disagreements," says Jack McIntyre, Portfolio Manager at Brandywine Global.

It's worth noting that the August Non-Farm Payrolls (NFP) showed a marked deterioration in the health of the private sector labor market, and that currency traders are deprived of the September report due to the government shutdown.

"Miran's position, which favors a more pronounced rate cut, can be considered too dovish. But Schmid's position, which advocated for no cuts at all, combined with Powell's statements at the press conference, where he indicated he wanted to distinguish the Fed's outlook on future rate cuts from the market outlook for December, cannot be ignored. This divergence implies less complacency in the financial markets, more volatility, and more balanced flows in both directions," the asset management executive continued.

Right now, the EUR/USD is trading at $1.1508.

KEY TECHNICAL ELEMENTS
The upward trendline that had prevailed until now (in black on the chart) has now been broken, with a confirmation pullback. The bearish outlook is suggested below this trendline, while the relative strength index is collapsing. The 20-day moving average (dark blue) has just broken significantly below the trajectory of its 50-day counterpart (orange). The gap between these two technical indicators is widening.

MEDIUM-TERM FORECAST
Based on the key technical factors we have mentioned, our medium-term outlook for the EUR/USD is bearish.

Our entry point is $1.1518. The price target for our bearish scenario is $1.1013. To protect your invested capital, we advise you to...