Euro Faces Gloomy Economic Outlook; Yen Pullback Remains Key Focus

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The Euro is weakening following dismal German sentiment data, while the Pound is being supported by job statistics. As traders anticipate the next moves in US rates and stocks, the dollar is weak. The Yen selloff sentiment in the markets has remained mostly unchanged. However, the majority of buying has turned to commodity currencies, driven by the Australian and New Zealand dollar, and also Sterling. 

In October, Germany’s ZEW Economic Sentiment fell from 26.5 to 22.3, falling short of expectations of 20.4. This is the fifth consecutive drop. Germany The Current Situation Index dropped drastically from 1.9 to 21.6, well below the 29.5 expected and the first drop since February.

The ZEW Economic Sentiment Index for the Eurozone fell from 31.3 to 21.0, falling short of expectations of 26.5. The current situation in the Eurozone has decreased 6.6 points to 15.9. The measure of Eurozone inflation expectations fell -3.0 points to 17.1. However, 49.1% of experts believe inflation will continue to climb in the following six months.

ZEW President Professor Achim Wambach said: “The economic outlook for the German economy has deteriorated markedly. The further decline in the ZEW economic sentiment indicator is mainly due to persisting bottlenecks in the supply of raw materials and intermediate products. Financial market experts expect profits to decline, especially in export-oriented sectors such as the automotive and chemical/pharmaceutical industries.”

Euro Banking Sector Secure in Terms of Capital

According to Reuters, European Central Bank (ECB) chief supervisor Andrea Enria said on Tuesday that the banking industry in Europe is safe in terms of capital. However, Enria cautioned that forborne loans in the euro area should be approached with prudence.

These comments do not appear to have a discernible effect on market sentiment. At the time of writing, the Euro Stoxx 50 is down 0.35% on the day to 4,058. Meanwhile, EUR/USD continues to swing in a tight range and was last traded flat daily at 1.1535.

On Tuesday, the EUR/USD maintains its consolidative trade range for another session, hovering around the 1.1530 level. In the current bearish environment, another visit to the 2021 bottom of 1.1529 is very likely shortly. A deeper decline from here might lead to a rapid test of the 1.1500 area, which is where March 2020 high is located. In the meantime, the EUR/USD is expected to trade lower in the near term, below the crucial 200-day SMA, which is currently at 1.1939.