Better than expected PMI data in Europe wasn’t enough to change investors' mood, which remains negative.
Germany's February manufacturing PMI jumped to 66.6, higher than the 60.8 expected. Also, data for Europe improved substantially, recording a figure of 62.4 vs 57.7 expected.
Despite the positive numbers in the manufacturing sector, the market expects the situation to worsen due to mobility restrictions (confinement and curfew measures imposed by Germany, France, Italy, and the Netherland, among others).
Europe is now considered to be amid the fourth wave of infections. Due to lack of supplies, the slow rollout of vaccines heralds a much bleaker economic outlook than previously anticipated.
The European Central Bank will undoubtedly have to maintain its ultra-expansionary monetary policy for a more extended period, perhaps more than was initially foreseen. In such a scenario, the difference between European and North American bond yields could widen even more, potentially strengthening the North American currency against the euro.
EUR/USD, on the downward spiral.
EUR/USD has fallen even further, breaking the nearest support located at 1.1844.
The next potential target for this downward trend would be located in the area between 1.1640 and 1.1700.
In general, the U.S Dollar has strengthened against all its pairs, including the Japanese yen. Therefore, the downward movement of the EUR/USD pair is caused by the intrinsic weakness of the euro and a stronger North American currency that resumes the upward path from the beginning of the year, supported by the increase in long-term bond yields.
The negative risk sentiment in Europe is also starting to affect European stock markets, experiencing several days of setbacks.
In the case of Germany30, the falls are minimal. The index is still within the uptrend zone above support zones located at 14424 and 14 168. Only a fall below these levels would signal that this latest uptrend is beginning to reverse.
Sources: Bloomberg, investing.com.
The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.
As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.
The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.
JME Financial Services (Pty) Ltd trading as ZA.CAPEX.COM acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via ZA.CAPEX.COM, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15. Magnasale Trading Ltd is the principal to the CFD purchased by investors