The Eurozone Machine Is Well Oiled
Skerdian Meta • 2 min read
There was another round of economic data this morning from the Eurozone and another sign that the EU economy is moving along nicely in the right direction. The Eurozone services and manufacturing PMI indicator jumped higher in October beating the expectations as well.
The German manufacturing numbers slightly missed expectations, while the same figures from France were spot on expectations, which means that the growth came from the other parts of the Eurozone, probably: Italy, Spain, Sweden, Portugal, Belgium, Ireland, Austria, Greece, etc. OK, maybe not Greece (sorry Greek FXML followers) but you get the point.
The services and particularly the manufacturing sector expanded the most in October in countries that needed it the most. The manufacturing sector in Germany still remains robust, so I´m sure the Germans could afford a month of slower economic growth so they can make up for their European peers.
That said, this is yet another round of data which shows that the European machine is starting to run and pick up speed as well. Not only is the EU economic data improving, but it is beating the expectations too as months go by.
That means one thing: the ECB monetary policy (QE programme and negative interest rates) is starting to work. So, it is no surprise that we have been hearing rumours in the forex market that the ECB might start tapering soon.
I know that the reaction in the Euro pairs was muted during and after the release, but that´s because the market is still locked in trading the aftermath of the US elections. Still, the better numbers from the Eurozone are building up on market´s subconscience, so once “trading the politics” is over and the attention is back on the real economy, the market will think seriously about the start of the tapering process from the ECB.
That will be the time the Euro will reverse, which we warned off yesterday in our EUR/USD fundamental analysis. If the data from the Eurozone continues to impress, then the ECB will surely cut down on the monthly bond purchases, but the reverse in this forex pair will start way before that. As we said in yesterday´s update, the reverse might be brutal. Be prepared.