Better Data In December

The latest set of economic data out of the eurozone today highlighted the ongoing recovery underway there with both the eurozone manufacturing and services PMIs continuing to rise over the last month. Despite the lockdowns in place across much of Europe over the last month, both data sets advanced further, in contrast to expectations for a contraction over the month.

EZ Manufacturing Hits 31-Month High

The Eurozone manufacturing PMI was seen rising to 55.5 from the prior month’s 53.8, beating expectations of a fall back to 53. The marks a 31 month high in the index which previously suffered record falls during the height of the pandemic over Q1. The rise was predominantly driven by the acceleration in new orders and exports of goods, which rose at their fastest pace in 34 months. The only weak spot in the reading was the employment component, which continued to fall over the month. Input costs, however, were seen rising at their quickest pace in 24 months, linked to the growing shortage of many raw materials which has driven prices higher. Encouragingly too, sentiment towards future prospects was also seen rising to a 34-month high.

EZ Services Stabilises Further

The Eurozone services PMI was also seen beating expectations last month. Despite remaining in contractionary territory, the index rose to 47.3 from the prior month’s 41.7, beating expectations of a 41.9 print. The services reading hopefully confirms a bottom in the index, which has been trending lower over the prior five months. While output was seen falling for a fourth straight month, it was recorded at a slower pace over the month, with fewer firms reporting having been affected by COVID restrictions. Similarly, the pace of the decline in new orders also weakened over the month. However, the exports component fell sharply again over the month as a result of ongoing social restrictions which have impacted travel and tourism. Encouragingly, however, as seen within the manufacturing data; the sentiment towards future prospects was seen rising to a 27 month high in December.

Recovery Continues

In all, this was a positive set of results for the eurozone and shows a strong level of resilience, particularly given the social restrictions which remain in place across many nations. The ECB recently acknowledged the brighter data while further supporting the economy with a EUR 500 billion extension of its PEPP programme.

Technical Views

EURUSD

The Euro continues to push higher against the Dollar here, within the broad bullish channel which has framed the recovery off YTD lows. The recent breakout above the 1.2090 level now opens the way for a move up to the next big bull target at 1.2538. Should price fall back below the 1.2090 level, the bull channel low will be first support ahead of the 1.1613 level.

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