Article by ForexTime

The EUR/USD hit a fresh trend low on Friday following the weaker than expected Eurozone manufacturing PMI data. There has been a shift in the dollar’s yield advantage this week with 10-year U.S. T-note yield differential over the equivalent bund widened over the last week to new cycle highs near 165 basis points, up from levels around 147 basis points seen before the Fed announcement on Dec-17. The market is speculating that the ECB will announce QE at its Jan-22 policy meeting, with concerns about disinflation the driving factor.

The Eurozone manufacturing PMI was revised down to 50.6 from 50.8 reported initially, but still up from 50.1 in November. The rise further above the 50 point no change mark points to a strengthening in manufacturing activity, but the downward revision will still add to the arguments of the doves at the ECB, especially as inflation is set to decline further at the start of 2015. Italian and Spanish PMIs declined in December, against expectations, which helped drive down the overall EU PMI.

Draghi says he doesn’t want to be a politician. Draghi told Germany’s Handelsblatt, that he does not want to be a politician, which suggests he won’t be available as a candidate for Italy’s presidential post when Napolitani resigns , which is likely to happen this year.

The technicals on the EUR/USD appear negative as the currency pair targets the 2010 lows at 1.1875.  Both weekly and daily momentum are negative as the MACD (moving average convergence divergence) index generated sells signals.  Both the daily and weekly RSI are printing readings that are below the oversold trigger level of 30 and this could foreshadow a correction.

Article by ForexTime

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