The GOP-controlled 119th Congress will take its seat around noon tomorrow. Over in the House chamber, there will be a vote for the Speaker of the House.
Meanwhile, results from the Pan-European Manufacturing Purchasing Managers Index demonstrates the danger of making a five day call on where the EUR/USD may end up at week’s end. The PMI is still signaling a contraction in the Eurozone economy coming in at 45.1, slightly lower than the forecasted level of 45.2, which also happened to be the level reported 16 December 2024.
A level below 50 is an indication of a contracting economy. One could tell that traders were getting concerned between 7:00 am and 8:00 am EST as the EUR/USD went from 1.03173 to 1.03138. The whopper came between 9:00 am and 10:00 am when the EUR/USD fell 87 pips, indicating that traders were willing to move into the cleanest dirty shirt in the basket, the US dollar.
When I turned away from the charts, there was a little upward pressure on the euro likely due to traders assessing the damage of the PMI report. Traders are reportedly building on expectations of strong growth in the United States as indicated in part by the smaller number of forecasted rate cuts here in the U.S. versus expected cuts in the Eurozone.
For example, according to reports from Reuters, traders are pricing in four 25-basis point rate cuts by the European Central Bank versus a potential two 25-basis rate cuts by the Board of Governors of the Federal Reserve System.
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As the dollar strengthens, investments in Europe in dollar terms start to lose value. Europe will have to take some action to keep Europe attractive for investment. Maybe Moldova’s decision to ditch the dollar for the euro as its reference currency for trade will help boost European confidence.
Meanwhile, the probability of the EUR/USD topping 1.0275 has dropped from 0.99 to 0.46. Will we see a turnaround in trader sentiment by Friday?
Alton Drew
2 January 2025
DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
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Show notes
https://www.reuters.com/markets/europe/global-markets-view-usa-2025-01-02/
https://www.reuters.com/markets/currencies/moldova-switches-reference-currency-euro-2025-01-02/
https://www.investing.com/economic-calendar/manufacturing-pmi-201
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