Friday's soft eurozone PMI releases – especially the drop in the services component – hit the short-end of the region's rate market hard and took EUR/USD to the lowest levels since 2022.

Current bounce may stall in the 1.0500/0550 area

“The view here remains there is no fiscal calvary coming in the eurozone and that the only way to address the current malaise is for the European Central Bank to cut rates more quickly than usual. The market now prices 37bp of a 50bp ECB cut in December and short-dated US; eurozone spreads remain very wide at 190bp.” 

“Futher updates on eurozone business and consumer confidence are released by the European Commission on Thursday. Also in the eurozone this week will be Friday's flash release of November CPI, where core inflation is unhelpfully expected to creep a little higher.” 

“EUR/USD is having a decent bounce after what looked like an FX option barrier-triggered mini-collapse to 1.0335 on Friday. The trend very much remains bearish and we are wary of more extended EUR/USD losses into year-end despite supportive seasonal patterns. We suspect the coming weeks may be characterized by periods of shallow corrections and then marginal new lows. The current bounce may stall in the 1.0500/0550 area.”