Morning Note: US and Europe: PMI Data, Index Trends, and EURUSD Analysis

Market Spotlight: EURUSD Challenges, Index Peaks, and PMI Insights

EURUSD: Technical Resistance and Downside Potential for the Parity

The EURUSD pair has been facing resistance in the 1.06 region on the daily chart, an area where the price has failed to consistently break through last week. If the pair's downtrend continues in the coming days, there is a growing possibility that the EURUSD will seek 1-to-1 parity throughout 2025. The strengthening of protectionist policies that may be adopted by the government of President-elect Donald Trump could act as a catalyst for this decline since protectionist measures tend to weaken the euro against the dollar. The expectation is that the weakening of the European economy and the US's focus on more domestic-oriented policies will favour the strengthening of the dollar, further pushing the pair to historic lows.

DAX: Breakout of Highs and Possible Retracement

Dax keeps making new highs despite recent bad numbers showing an uncertain moment in Germany’s economy. However, a technical pullback could occur later this week, given the strong upward movement and the lack of new catalysts to sustain the trend without corrections. Investors’ attention will be focused on the inflation data for the Eurozone, which will be released in the coming days. If the inflation data indicates increasing pressures, the European Central Bank could adopt a more restrictive stance, which could negatively impact expectations for economic growth in the region and consequently affect the performance of the DAX.

SP500 in All-Time Highs. Is pullback on the way?

The SP500 remains in a region of all-time highs, fuelled by continued optimism and the recovery in corporate earnings. However, the index could face a pullback at any time, given the stretched price level and the potential for profit-taking by investors. This week's key point will be the Federal Reserve's decision on the USD interest rate, which is expected on Wednesday. If the Fed opts for a more hawkish tone in its statements, this could negatively affect investor expectations, as a tighter monetary policy tends to increase financing costs and impact corporate growth. This scenario could trigger a correction in the SP500.

Manufacturing PMI: Reading Below 50 and Challenges for the USD

The Manufacturing PMI for the US has shown a constant trend of readings below 50, which indicates a contraction in the sector. This weak performance could be a reflection of the global economic slowdown, with American manufacturing facing internal and external challenges, such as trade tensions and supply chain shortages. The persistence of readings below 50 suggests that the recovery of manufacturing in the US may be slower than expected, which negatively pressures the dollar (USD), as investors may seek safer assets, such as gold or currencies from more resilient economies.

Services PMI: Signs of Optimism

On the other hand, the US services PMI has been holding steady near 55, a value that suggests economic expansion and moderate optimism. This positive data in the services sector, representing the largest part of the US economy, could provide a boost to the dollar (USD), especially if the number surprises on the upside. The resilience of the services sector could be seen as a sign that the economic recovery is on the solid side, helping to offset the challenges faced by manufacturing. A stronger-than-expected services PMI could reinforce growth expectations in the coming months and continue to support the stock market, including the SP500.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.