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Daily Reports 17

ECB meeting ahead

By David Morrison  |  24/01/2019 11:21

The euro fell in early trade following the release of weak Flash PMI data for the euro zone. Now the focus turns to today’s ECB meeting and Mario Draghi’s press conference
The euro was under pressure on Thursday morning following the release of a clutch of disappointing European Flash PMI numbers. Germany’s Manufacturing sector registered contraction for the first time in five and a half years, slipping below 50 from 63.3 in December 2017.  There was some better news from German Services which perked up a bit, but overall, the IHS Markit Euro zone Composite PMI® fell to 50.7 in January from 51.1 in December, its lowest since July 2013, and dangerously close to contraction territory. The news saw the EURUSD pull back sharply to trade below 1.1350, having looked on course to break above 1.1400 overnight.
Mario Draghi in focus
The EURUSD took a sharp leg down between September and November last year. This sell-off corresponded with a rally in the dollar. Investors piled into the greenback as they sought out safe havens amid the dramatic sell-off in global risk assets. This saw the EURUSD hit a 17-month low just shy of 1.1200 in November last year. The euro has steadied since then and has managed to carve out a succession of higher highs and higher lows suggesting that a recovery may be on the cards. However, the overall technical picture is one of confusion given the New Year FX ‘flash crash’ and the US Federal Reserve’s sudden dovish pivot which saw the EURUSD slump then soar in the space of a week. But having climbed above 1.1550 little over a fortnight ago, the EURUSD has fallen back sharply and it looks as if a retest of support around 1.1300 is likely. While analysts have drastically reduced the probability of Fed rate hikes this year, there’s also a belief that the European Central Bank (ECB) will find it impossible to tighten monetary policy further, given the growing evidence of economic weakness across the single currency bloc. Market participants are now looking ahead to today’s ECB rate decision. The central bank isn’t expected to make any changes to monetary policy, particularly as it has only ended its Asset Purchase Programme last month.  However, all focus will be on ECB President Mario Draghi when he holds is press conference at 13:30 GMT.
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