Forex News: Euro Erases Gains Despite Higher Composite Output Index

THE TAKEAWAY: Euro-zone composite output beats expectations at 47.3 -> PMI’s signal that negative growth could continue in Q4 -> Euro erases earlier gains

While Euro-zone composite output continued to fall for the eleventh straight month in December, according to a flash PMI, the rate of decline has slowed to a nine month low. Markit’s composite output survey was reported at 47.3, beating expectations for 46.9 and higher than last month’s 46.5 survey. The PMI for manufacturing activity in the Euro-zone was seen at 46.3 according to the flash estimate, slightly worse than the expected 46.6 index. The services PMI was reported at 47.8, better than the expected 47.0 PMI.

Euro-zone business activity has fallen for 15 of the past 16 months according to Markit’s report. New business also continued to decline in December, but the rate of decline slowed for the third month in a row. Output rose in Germany for the first time in eight months, as an increase in service sector activity was slightly better than a decline in manufacturing production.

An ECB monthly bulletin said that the central bank expects the Euro-zone economy to continue to weaken into 2013, and in the second part of the year, the economy may see a gradual recovery. The Euro-zone economy hit a recession in Q3 when it saw negative growth for the second straight quarter. Markit Chief Economist Chris Williamson said, “The survey is still consistent with euro area GDP falling for the third successive quarter and, as the official data lag the PMI, the downturn is likely to have steepened compared with the 0.1% decline seen in the third quarter.”

The Euro fell from an earlier session high above 1.3100 that followed optimistic overnight headlines, and is now trading around 1.3080 against the US Dollar. It is unclear if it was the release of French and German PMI’s that sent the pair lower, or if it was just an unwinding of the recent gains. The 3-month high of 1.3139 could continue to provide resistance; a 10-month falling trend line could provide support around 1.3065.

EURUSD Daily: December 14, 2012

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