Euro recaptures 1.13, German PMI declines

The euro started the New Year with sharp losses, but the currency has rebounded on Wednesday, posting gains of 0.44% and punching above the 1.13 level.

German Services PMI contracts

Germany’s service sector showed contraction in December, falling below the 50-level for the first time in eight months. The PMI fell from 52.7 to 48.7 points. The German recovery stalled in December, as the country was hit by a fourth wave of Covid and tighter health restrictions dampened business activity, especially exports. The silver lining is that despite the current difficult conditions, German service providers remain optimistic that business conditions will rebound during the year. The German PMI was significantly lower than the all-eurozone PMI, which came in at 53.1 points.

In the US, the ADP employment report surprised to the upside, with a December reading of 807 thousand new jobs, double the consensus of 400 thousand. The estimate for the nonfarm payroll report on Friday is 424 thousand, but the ease in which the ADP crushed the estimate could mean that the NFP forecast is too low. Still, it is worth noting that the ADP report only covered the first two weeks of December, before the massive spike in Omicron cases.

Later today, we’ll get a look at the FOMC minutes from the December policy meeting. The Fed recently abandoned its ‘transitory inflation’ label, as inflation, which is running at a 40-year high, shows no signs of easing anytime soon. The Fed has shifted to a hawkish stance and plans to double the size of its tapers from USD 15 billion to USD 30 billion. This will be followed by the first rate hike in three years. Lift-off could come as early as March – Fed Watch has priced in a March hike at over 60%. The markets expect the Fed to be more hawkish and have priced in three rate hikes in 2022.

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 EUR/USD Technical

• EUR/USD has support at 1.1303. Below, there is support at 1.1232
• There is resistance at 1.1456 and 1.1415

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