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EU PMIs surprise on the upside

Market Analysis
2017-02-21_11-51-04

EURGBP, H1

German, French PMIs stronger than expected. The French reading showed a weaker than expected manufacturing PMI, which dropped back to 52.3 from 53.6, but that was more than compensated for by a renewed jump in the services reading to 56.7 from 54.1, which lifted the composite to 56.2 from 54.1. In Germany both manufacturing and services PMIs surprised on the upside, with readings rising to 57.0 and 54.4 respectively, from 56.4 and 53.4 in the previous month. This was a clear sign for an upside surprise in the overall Eurozone number. Hence, Eurozone composite output index rose to a 70-month high of 56.0 in February from 54.4 in the previous month, as the Services Index jumped to 55.6 from 53.7 and manufacturing PMI rose to 55.5 from 55.2. The manufacturing output index stood at a 70-month high of 57.2 in February up from 56.1 in January. German and French data showed that the improvement in the manufacturing reading was mainly driven by Germany, while the acceleration in the services sector was broader based. Job creation was at the highest level in nine and a half years, which also means the risk of second round inflation effects is rising as the labour market continues to improve. Not an easy situation for Draghi though, as the improvement on the economic front is counterbalanced by rising political risks inside and outside of the Eurozone, as markets are taking a very cautious stance on Frexit risks, after betting on the wrong horse in U.K. and U.S. polls last year.

Earlier today, EURGBP’s failed to sustain gains above its 200-day moving average at 0.8514. RSI has been in over sold territory since early today and turned slightly above 30, the last few hours. However, it keeps its negative slope. The MACD histogram remains in the negative territory, since yesterday morning. Additionally, EURGBP manage to brake the lower Bollinger bands pattern, as can been seen by the last candle. All these technical moves, presented in the 1-hour chart, suggest that weakness noticed since Friday, might continue for a while. In the higher timeframe, 4-hour chart, Parabolic SAR, remains negative, since yesterday’s turn.

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Andria Pichidi

Market Analyst

HotForex

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