EUR: Delaying the 1.05 break – ING

PMIs have become an increasingly important release for the eurozone after the European Central Bank shifted the focus from inflation to growth and is now taking a broader range of soft activity data into account. The eurozone’s composite PMIs is at 50.0, the break-even level between contraction and expansion, meaning a greater resonance of even small movements in the index when they are published on Friday – especially if on the downside, ING’s FX analysts Francesco Pesole notes.

EUR/USD to trade around 1.04 at year-end

“Our economists are cautiously optimistic on the eurozone-wide figure, where they expect 50.2 (consensus is 50.0), although they suspect German figures could still disappoint. On this topic, expect a buildup in market scrutiny over the German snap elections in February and what those can mean for both Europe’s (geo)political balance and prospects of any bending of Germany’s strict debt rules. Our colleague Carsten Brzeski argues here how fiscal stimulus will have to come under the new government, regardless of the fiscal break. Still, that will take some time, and one of our key macro calls for 2025 remains that the ECB will need to do the heavy lifting in supporting the economy ahead of further protectionism-related growth headwinds.”

“Our short-term call for EUR/USD is that it can hold above 1.050 this week as dollar bulls take a break, but that is admittedly not a high-conviction view. As discussed above, the dollar momentum remains strong and there is no obvious catalyst for an inversion, outside of technical considerations. Obviously, soft EZ PMIs can easily prompt a break lower as markets could price in a 50bp ECB cut in December from the current 30bp. Ultimately, in line with our call for a half-point ECB move in December, we expect EUR/USD to trade around 1.04 at year-end.”

“Today, there are a few key ECB speakers, including President Christine Lagarde and Chief Economist Philip Lane. Remember how the latest ECB minutes showed some frictions within the Governing Council on the sustainability of disinflationary drivers. With plenty of ECB-speak this week, we may get a slightly clearer picture of where consensus is on this.”