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Eurozone sliding into recession, economic data unlikely to provide EUR support

Last week proved to be somewhat hectic with a string of high profile macroeconomic and geopolitical events, resulting in some significant moves across major currency pairs. The mood this week may be a little more subdued, although factors such as Brexit developments or an indication that there may be a breakthrough in the US-China trade talks could still bring unexpected bouts of volatility to the table.


The UK Construction Purchasing Managers’ Index (PMI) for January kicks off the week ahead. A fall to 50.6 took place in January, despite expectations for a reading of 52.5 to be seen, down from December’s reading of 52.8. This marks a 10-month low on the back of a commercial slowdown as Brexit anxiety damages the sector, and staff recruitment hit its weakest pace since July 2016.

US Factory Orders for November are due to be published today, with expectations that an uptick can be seen. This data is somewhat aged, but the fact that concerted efforts now appear to be taking place to unblock trade tensions between the US and China should mean that even a modest uptick has the potential to be well received. Expectations are that October’s -2.1% decline can be reversed into 0.3% expansion.


There has been no shortage of disappointing news emerging from the Eurozone of late, and it seems as if there’s little hope that today’s Retail Sales figure will help reverse this trend. The month-on-month print for December is expected to come in at around -1.6%, down from November’s +0.6%, heaping weight on the European Central Bank (ECB) to consider fresh stimulus measures. The Eurozone is sliding into recession, and a stagnating consumer economy will do little to help.

The UK’s dominant services sector sees its corresponding Purchasing Managers Index figure for January released, with expectations for a modest decline. Forecasts are for the reading to soften from 51.2 to 51.0, which is edging close to the break-even 50.0 mark. Discounting the dip seen in November, this is on course to be the lowest print since the UK voted to leave the European Union back in the summer of 2016.

The US will also release its high-tier ISM Non-Manufacturing/Services Composite index, which is expected to soften from 57.6 to 57.0 in January. The Reserve Bank of Australia (RBA) will announce its latest monetary policy decision, with borrowing rates expected to remain unchanged.


On Wednesday, German Factory Order Data for December is expected to return to positive territory after November’s 1.0% dip. However, the annual stat is forecast to slip further into contraction, from November’s -4.3% to -6.7% in December. This figure is volatile and frequently prints a negative number, so the bigger concern is probably whether the threatened US import tariffs on European manufactured cars transpire mid-month. That aside, a positive reading has the potential to offer the Euro some short-term support.


The Bank of England (BoE) will be in focus today, with both the latest monetary policy decision and the quarterly inflation report set for release. There’s no expectation of any change in asset purchases, and the board is set to be unanimous in its support for holding borrowing rates steady, but the possibility for Mark Carney to spook the market once again over the potentially damaging impact of a no-deal Brexit cannot be ignored. Sterling has been drifting higher of late on the idea that the worst-case scenario can be avoided, but a reversion could still be seen.

The European Central Bank will also publish its latest economic bulletin today, which could contain some key perspective on the pace of decline that is to be expected within the Eurozone.


There will have been no shortage of economic indicators for the Eurozone this week, but today’s German Trade Balance for December can expect to be under some scrutiny. Expectations are for the figure to fall to EUR 17.3B, down from November’s EUR 20.5B. It’s worth noting that the December print tends to be depressed by a degree of seasonality, but a skittish market could still use this as a broader sell signal for the common currency.