Draghi’s comments help euro recover

‘The trend is your friend till the bend in the end’ – a truer phrase could not be uttered about EUR/USD today.

The pair plummeted through key support levels on the back of comments from an EU source about the potential for negative deposit rates. While this could be a tool for warding off deflation, it would in all probability be met with stringent opposition from the likes of Germany. European Central Bank president Mario Draghi scuppered the rumour earlier this morning, and we are now seeing something of a recovery in the euro.

Eurozone PMI data today was for the most part disappointing, with business activity notably softer this month. The flash composite fell to 51.5 in November, slightly lower than last month’s number of 51.9. While still above the 50 level, which separates contraction from expansion, the index does appear to be heading in the wrong direction.

German PMI was above expectations in terms of services and manufacturing output. The US flash manufacturing number is expected to improve on last month’s, to 52.6. Unemployment claims and PPI will also be closely watched, as both numbers are directly related to tapering expectations. Two members of the Federal Open Market Committee will speak later this afternoon, too.

I maintain a bias for upside in the euro against the dollar, so any moves through 1.3490/1.35 should garner added momentum.

Spot FX EUR/USD chart

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