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Euro ignored the small changes in the manufacturing sector of the Euro zone, which, as a whole, continued to decline at the end of 2019, indicating that a number of unresolved problems remain, putting pressure on the economy. Throughout the past year, against the backdrop of protectionist US policies and trade conflicts, the manufacturing sector continued to experience problems with exports. Moreso, the temporary truce between US and China as well as the signing of the first stage of the trade agreement has not yet had any effect for the better. EU's internal market alone is not enough to restore activity in the manufacturing sector and resume its growth at the same level.
According to a report, in December this year, the purchasing managers' index (PMI) for the manufacturing sector in Italy fell to 46.2 points, against 47.6 points in November. Meanwhile, economists had forecasted this decline to amount to 46.9 points.
A similar measure of activity happened to the German manufacturing sector in December this year, which fell to 43.7 points, against 44.1 points in November. Experts had forecasted the decline to be 43.4 points
The only country where production activity showed growth is France. According to the Statistics Agency Markit, the PMI for the manufacturing sector in December was 50.4 points, in contrast to November's 51.7 points. It was forecasted to fall to 50.3 points.
In the Eurozone as a whole, this indicator remained below 50 points, signalling a reduction in activity. Thus, consequently, the PMI for the manufacturing sector of the Euro zone in December fell to 46.3 points, against November's 46.9 points. It was forecasted to fall to 45.9 points.
As for the data on the American economy, particularly on the labor market, yesterday's report of the US Department of Labor completely coincided with economists' forecasts. The number of initial applications for unemployment benefits in the United States from the week of December 22 to 28 fell by 2,000 to 222,000, with economists predicting it to be at the level of 225,000. The excellent performance of the labor market allowed a good forecast for the American economy at the beginning of 2020. Secondary claims for unemployment benefits in the United States for the week of December 15-21 rose by 5,000 to 1.728 million.
This Friday, data on the number of people employed in the non-agricultural sector are not published.
As for the US manufacturing sector, the situation is much better than in the Eurozone countries. According to the Markit, the PMI for the US manufacturing sector in December was at the level of 52.4 points, which is slightly lower than the December value of 52.5 points. Continued growth in activity will continue to support the economy.
The technical picture of the EUR/USD pair is favoring the side of the sellers of risky assets. Yesterday's reports on the Euro zone led to the breakout of several important support levels, affecting the mood of buyers. A break through of the 1.1160 level will increase the pressure on the trading instrument, and will most likely lead to a further downward correction in the area of 1.1145 and 1.1110 levels. However, the bulls will still have hope as the Federal Reserve's report will be released today. Hints of further rate cuts early this year could lead to a stronger upward movement for euro. The return of the bulls to the level of 1.1200 will lead to the demolition of a number of stop orders of bears, a new wave of growth of EUR/USD to the maximum of the week 1.1240 and an update in the area of 1.1290 and 1.1340.
GBP/USD
After a sharp rise at the end of last year, the British pound remains under pressure against the US dollar on the back of profit-taking. The bulls did not manage to cover yesterday's morning gap despite the slight increase of UK's PMI on the manufacturing sector in December, which amounted to 47.5 points. This was not enough, however, to talk about the recovery of the sector in the short term.
As for the technical picture of GBP/USD, today, the bears will continue to push the pound even lower to the lows of 1.3080 and 1.3020. This will be done to restore the balance of the market, which was lost at the end of the year. I think that it is only from these levels that we can expect larger buyers to return.
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