Euro May Rise as PMI Data Triggers Short-Covering

Talking Points:

Euro May Rise if Upbeat PMI Figures Trigger Unwinding of Short Positions
Aussie, NZ Dollars Underperform as US Dollar Rebound Continues in Asia
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The preliminary set of November’s Eurozone PMI figures headlines the economic calendar in European trading hours. A slight acceleration in the pace of manufacturing- and service-sector growth is expected, with the regional composite gauge ticking up to 54.0 from 53.9 recorded in the prior month.

Economists have steadily downgraded their forecasts for Eurozone economic data since July even as realized outcomes have increasingly outperformed relative to expectations (according to data from Citigroup). That opens the door for an upside surprise.

Such a result may encourage short-covering after net speculative bets against the Euro hit the highest level in over five months, sending the currency upward. Indeed, options markets reveal bets on a near-term recovery, with 1-week risk reversals showing investors willing to pay a 63bps premium for the right to buy the common unit against the US Dollar compared with an equivalent right to sell.

Euro gains may prove short-lived however. Dovish commentary from ECB officials has set the stage for stimulus expansion at next month’s policy meeting. That means traders are unlikely to commit to a firm bullish bias, painting any immediate gains as corrective in the context of a longer-term decline.

For its part, the greenbackcontinued to correct higher for a second consecutive session in overnight trade after dropping to a two-week low last Thursday. The Australian and New Zealand Dollars proved weakest against the greenback having outperformed in the prior week.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

11:00

EUR

ECB’s Weidmann Speaks in Freiburg, Germany

–

21:45

NZD

Net Migration SA (OCT)

6210

–

5600

European Session

GMT

CCY

EVENT

EXP

IMPACT