Euro Declines as PMI Output Index Breaks Uptrend

THE TAKEAWAY: Euro-zone composite output index declines to 47.3 in February -> Doubts raised over Q1 growth -> Euro declines in Forex markets

The Euro declined about 70 points against the US Dollar as the Euro-zone composite output index reversed direction following four months of improved results. The composite index for output fell to 47.3 in February, disappointing expectations for 49.0 and down from 48.6 in January. The Purchasing Managers’ Index for manufacturing was reported at 47.8, and the PMI for services came in at 47.3, as both indexes were worse than expected. Markit’s PMI measures the expansion or contraction in sector activity, based on a 50.0 neutral point.

The decline in Euro began with the release of the German PMI’s. The index for manufacturing was reported at 50.1, lower than the expected 50.5 index but higher than 49.8 in January. The PMI for services dropped to 54.1 from 55.7 in January, according to Markit.

The downturn in the PMI is a surprise after the previous months’ indexes showed a possible upcoming improvement in economic output. However, the ECB has previously forecasted that the economy may see weakness in the first part of this year before a later recovery. Markit Chief Economist Chris Williamson said, “despite the fall in the PMI, the firstquarter decline in the economy should be less severe than the 0.6% drop in GDP seen in the final quarter of 2012, with a contraction of 0.2-0.3%looking likely.”

The Euro is currently trading slightly below 1.3200 following the decline on the PMI releases, and EUR/USD may find support at 1.3197, by the 76.4% retracement of the rally from January 10 to the February high. Resistance may be provided by a broken support line at 1.3284.

EURUSDDaily: February 21, 2013

Chart created by Benjamin Spier using Marketscope 2.0

– Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

Euro Declines as PMI Output Index Breaks Uptrend