The Euro Continue to Fall as European Sentiment Declines

The EUR/USD continued to move lower on Monday as sentiment in the Euro zone continued to erode. Eurozone retail PMI disappointed while German manufacturing orders unexpectedly contracted. The ECB warned that protectionism could hurt global growth.

Technicals

The EUR/USD moved lower on Monday and continues to face headwinds as U.S. yields outpace their European counterparts. Resistance on the exchange rate is seen near the 200-day moving average at 1.2017, with additional resistance seen near the 10-day moving average at 1.2053.  Support is seen near an upward sloping trend line that comes in near 1.1550. Negative momentum is decelerating as the MACD (moving average convergence divergence) histogram prints in the red with an upward sloping trajectory which points to consolidation. The fast stochastic is consolidating printing a reading of 6, which is well below the oversold trigger level of 20 and could foreshadow a correction.

Sentix Indicator drops once again in May

More negative news for the Eurozone as the Sentix economic index dropped for a fourth consecutive month in May and at 19.2 is at the lowest level since February last year. The German reading also dropped once again and in the overall comparison only expectations for the U.S. and Asia improved, reflecting hopes of a positive outcome in U.S. China trade talks, according to Sentix, which said, however, that “the global scenario of cooling off continues”.

Eurozone retail PMI disappoints

Eurozone retail PMI disappoints with the overall index falling back to 48.6, and thus signals lower monthly sales. The overall reading fell back to 48.6 from 50.1 in March and this was the first reading signalling a drop in sales since March last year. Markit highlights “signs of restricted consumer demand and increased uncertainty”. Unemployment continues to drop, wages are picking up, but it seems this is not enough to boost sales against the background of heightened uncertainty about the overall outlook.

German construction PMI shows modest rebound in April

German construction PMI shows modest rebound in April. Severe weather conditions disrupted construction activity in March, but the rebound in April was also pretty muted, “amid signs of stretched capacity at sites, with building companies taking on less new work due to full utilisation of resources”, according to Markit, which said that “ongoing job creation and elevated business confidence nevertheless signaled that the sector remained on a strong footing”. Some silver lining then for the German economy, after the disappointing manufacturing orders numbers earlier in the day.

German March manufacturing orders unexpectedly contracted

German March manufacturing orders unexpectedly contracted -0.9% month over month in March, with February revised down to -0.2% month over month. This makes it the third consecutive month of contraction, which will raise fresh concerns that the German recovery has peaked and that the slowdown in Q1 was not just due to special factors but will spill into the second quarter. So far the backlog of orders is quite high, which should continue to underpin production going forward, but downside risks are clearly stacking up.

ECB warns protectionism could hurt global growth

In an article published ahead of the Economic Bulletin (Thursday), ECB research staff warned that “in the event of a significant increase in protectionism, the impact on global trade and output could be material”, and “particularly severe in the U.S.”. The ECB has repeatedly warned against the possible negative impact of protectionist measures on world growth and coming amid the fresh wave of negative survey as well as real data out of Germany and the Eurozone as a whole today, the comments suggests further downside risks for the Eurozone economy ahead. In a way this backs early action from the ECB, which has jet to halt the ongoing flooding of the economy with cash. Waiting too long with measures to halt and eventually reverse the ECB’s very expansionary policy would risk pro-cyclical policy moves.