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EUR/USD trades with a soft tone ahead of European flash PMIs

  • EUR/USD drops 0.10% ahead of the European PMIs. 
  • Weaker-than-expected data could bolster the soft tone around the single currency. 
  • EU leaders meet today on the fiscal response, but the north-south divide may hinder progress.

The single currency is prolonging the pessimism seen on Wednesday and pushing EUR/USD  to weekly lows in the 1.08 neighborhood. The pair is currently trading near 1.0810, representing a 0.10% drop on the day, having declined by 0.30% on Wednesday.

Focus on PMIs

Eurozone's preliminary PMI numbers for April will likely test the appetite for the single currency during the European trading hours. 

Germany's Markit Manufacturing PMI, due at 07:30 GMT, is expected to show the deterioration in the manufacturing sector deepened in April. The PMI is forecasted to drop to 39 from March's 45.4. 

The Eurozone Manufacturing PMI is also expected to drop to 39.2 in April from 44.5 in March. 

The worsening of the manufacturing activity should not come as a surprise as most European economies went in a self-imposed lockdown earlier this month to contain the coronavirus outbreak. Nevertheless, the single currency may draw offers if the actual figures show bigger-than-expected contraction. 

Post-PMIs, the focus would shift to the European Union (EU) summit. EUR/USD will likely pick up a strong bid if the summit bridges deep divisions on the contentious issue of how to pay for a recovery fund to help the continent withstand the economic slump brought on by the coronavirus pandemic. 

ANZ analysts are of the opinion that Europe is not yet ready to deepen fiscal integration and the finance ministers may not be able to provide an appropriate fiscal stimulus. In that case, peripheral bond spreads may widen, leading to deeper losses in the EUR/USD pair. 

Technical levels

 

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