EUR/USD rallies to near the psychological resistance of 1.0500 on Friday as the Hamburg Commercial Bank (HCOB) reported that the Eurozone preliminary Composite Purchasing Managers' Index (PMI) grew in January after shrinking in the last two months. Flash HCOB PMI report, compiled by S&P Global, showed that overall business activity expanded. The Composite PMI rose to 50.2 from 49.6 in November. Economists expected the PMI to continue to decline but at a slower pace to 49.7.
The kick-off to the new year is mildly encouraging. The private sector is back in cautious growth mode after two months of shrinking. The drag from the manufacturing sector has eased a bit, while the services sector continues to grow moderately. Germany played a major role in improving the eurozone economy, with the composite index jumping back into expansionary territory. In contrast, France's economy remained in contraction," Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said.
The report also showed robust labor demand and new business in the services sector. Meanwhile, the manufacturing sector continues to experience layoffs and declining new orders.
Upbeat Eurozone PMI has improved the appeal of the Euro (EUR) in the near term but is unlikely to fix its weak broader outlook on the back of firm European Central Bank (ECB) dovish bets. The ECB is all set to cut its Deposit Facility rate by 25 basis points (bps) to 2.75% on Thursday and will continue to follow the process in the next three policy meetings as officials are confident that inflationary pressures will sustainably return to the desired rate of 2%.
EUR/USD strengthens as the US Dollar (USD) risk-premium has diminished significantly. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is down near 0.6% on Friday and posts a fresh five-week low near 107.45. The USD's risk-premium has eased significantly as United States (US) President Donald Trump has signaled that he could reach a deal with China without using tariffs.(Cay) Newsmaker23
Source: Fxstreet
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