Investor sentiment returns to negative territory, as Europe faces the fourth wave of infections – Market Overview

Investor sentiment returns to negative territory, as Europe faces the fourth wave of infections – Market Overview

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.

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