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September 26, 2019
The Euro is paralyzed versus the U.S. Dollar and the Japanese Yen, due to the publication of data on the Purchasing Managers Index (PMI) for Germany's manufacturing sector which is extremely bad. The Euro dropped around 0.5 percent to the lowest range of 1.0966 against the U.S. dollar.
The Euro is also paralyzed versus the Japanese Yen, although it is still quite tough against the British Pound. The reason, the publication of the latest data shows a drastic decline in the German manufacturing sector has expanded to the service sector and dragged economic growth in other regions.
Research institute Markit Economics reports that the preliminary score of the Purchasing Managers' Index (PMI) for the manufacturing sector of the Euro area fell from 47.0 to 45.6 in September, whereas it was previously expected to recover to 47.3. Deterioration mainly occurred in Germany. PMI scores fell from 43.5 to 41.4, the lowest record in almost a decade.
A slowdown in manufacturing business also dragged service companies across the Eurozone, so the PMI score for the service sector slipped from 53.5 to 52.0. The performance was worse than the estimate pegged at 53.3. On a composite basis, the Eurozone PMI score rolled from 51.9 to 50.4.
Phil Smith at IHS Markit said that growth is unlikely before the end of 2019, as the economy is poised if compared with last year’s last quarter. The change of PMI data can be understood as one of the economic growth barometers. In other words, this report may worsen the opinion of the market regarding the policy of ECB.
The Euro is expected to be forced to make more monetary easing in December, both in the form of interest rate cuts and expansion of the asset purchase program. "In the current situation, the ongoing appreciation of the Euro is almost impossible.
“Without the seriousness of the German government to support the economy adequately, this currency tends to be somewhat lethargic," said Marc-André Fongern, Forex and macro strategy expert at MAF Global Forex. Moreover, inadequate Canadian retail sales made CAD unable to surpass the strengthening U.S. dollar.
The Canadian dollar weakened against the U.S. Dollar after Canadian Retail Sales data was released. In addition, investors also began to reduce their short positions against the US Dollar, as the problem of the global slowdown slowly gave rise to the safe haven function of the U.S. Dollar.
Canada's monthly retail sales for July 2019 reportedly rose 0.4 percent. Even though it was higher than the previous month of -0.1 percent, the results did not meet economists' expectations of a 0.6 percent increase. As the report was released, the Canadian Dollar weakens if compared to the U.S. Dollar.
In addition to that, the Core Retail Sales data further added pressure to the Canadian Dollar. Data that had a higher impact on the exchange rate actually dropped to -0.1 percent, missing expectations of a decline to 0.2 percent. Compared to August's 0.9 percent, the decline in Canadian Core Retail Sales this time is certainly significant.
Responding to Canadian Retail Sales data in general, economist Doug Porter of BMO Capital Markets linked it to the potential for Canadian GDP growth in the third quarter. According to economists' assessment, Canadians tend to have high debt burdens and thin savings. That's what influenced their shopping behavior in this decade.
"However, the relatively flat performance from the consumer side at the beginning of the third quarter further enhances the view that overall GDP will drop quite significantly this quarter, after a rapid rise of 3.7 percent in the second quarter," Porter continued.
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