Dollar Drives Higher on Positive Services Outlook

  • U.S. Services are in expansionary mode
  • Market likes that even if manufacturing is in a slump
  • The ECB is likely to spend the year pondering inflation…or the lack of it
  • The EURUSD rate will slide to 1.0800 in Q1 2020

The U.S. Dollar climbed against its rivals Friday on data that showed evidence of ongoing strength in the U.S. services sector. This was able to offset a continued slowing in manufacturing to a three-year low.

The IHS Markit US Services PMI rose to 53.2 in January 2020 from 52.8 in the previous month, above market expectations of 52.9, a preliminary estimate showed.

The IHS Markit US Manufacturing PMI fell to 51.7 in January of 2020 from 52.4 in December, below market expectations of 52.5. It was the slowest increase in factory activity in three months, flash figures showed. Although output continued to rise at a moderate pace, new business growth was only marginal as both domestic and foreign client demand softened.

Manufacturing PMI

Figure 1: U.S. Services and Manufacturing PMI    Source: IHS Markit

The latest reading of the services PMI indicates the strongest pace of expansion in the service sector since last March, as employment increased the most in six months while new order growth eased.

Business optimism reached a seven-month high although input prices rose the most since last July and output charges were raised only at a modest pace.

The U.S. Dollar Index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.18% to 97.87.

This news came a day after the ECB left the key interest rate on the main refinancing operations steady at 0.0% during its January 2020 meeting, as expected. The marginal lending facility was also kept at 0.25% and the deposit facility at -0.50%.

Much had been expected from the ECB President, Christine Lagarde re a new inflation strategy. She confirmed the launch of a strategic review but failed to provide any details.

Inflation has been consistently below the central bank’s target range. This is defined under the current strategy as a consumer price index of “close to, but below, 2%” over the medium term. This shortfall has occurred despite increasingly aggressive stimulus measures under Lagarde’s predecessor, Mario Draghi.

Lagarde is therefore on a mission to make her mark and will announce the scope of the ECB’s first strategic review since 2003. There was no new startling announcement, in fact the review will be a drawn out affair lasting for most of the year and is likely to embrace a range of topics such as inflation, growth and the risks from digital money.

Therefore the U.S. Dollar looks set to tower over the Euro. There is not one single bullish aspect to the EURUSD pair.

EURUSD time technicals

Figure 2: Technical Sentiment Toward EURUSD    Source:, Spotlight Group

The Euro traded below $1.104 early on Friday, the weakest since December 2nd. Clearly the Euro was friendless in the ring after Lagarde took a more dovish tone during the ECB press conference on Thursday.

Also, data showed business activity in the Euro Area remained very weak in January as slight improvement in manufacturing activity was not enough to offset a slower growth in services.

On the day the EURUSD fell by 0.24% to 1.1025 and I see a slide past the 23.6% retracement line to 1.0855 on the cards as the first quarter unwinds.

EURUSD Three year chart

Figure 3: Three -Year EURUSD Chart   Source: , Spotlight Group

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d...continued

Comments on this analysis

Your email address will not be published. Required fields are marked *

Latest Related News

Day Trade Ideas: Video analysis – Dollar, WTI Crude, Gold, Emini S&P, Dow Jones

Wide analysis of the US Dollar, Crude Oil, E-Mini Future S&P 500 and the Dow Jones. Also taking a look at Gold and how it is doing in these volatile times. Continued

“Risk on” resumes! Data wins over virus concerns

Macroeconomic/ geopolitical developments Global financial markets have started to resolve the indecisive theme that has been evident from the middle of June into more of a “risk on” bias to start July.Markets have been caught between two competing forces; increasingly positive economic data compared to consensus and the rise in COVID-19 cases (particularly in the southern states of the US, but also in pockets globally).The… Continued

Euro still exposed to renewed weakness – EURUSD forecast

The Euro versus US Dollar forex rate, EURUSD has been in an  erratic, but we would argue still negative consolidation range since our last report.This leaves the threat for further EURUSD losses into today, this week and early July. EURUSD day trade outlook: Further consolidation, bias stays lower to key 1.1166 Day trade update and view Again, an erratic consolidation Wednesday with a prod below 1.1189… Continued

Euro, Pound and Australian Dollar supports under threat

Euro-Dollar fails at first resistance - EURUSD forecastPound threatens to break down once more - GBPUSD forecastMajor support on Aussie evaporates - AUDUSD forecast Continued

Is the bear market rally top in? US COVID-19 cases weigh on stocks

Macroeconomic/ geopolitical developments Global financial markets continued the indecisive tone seen through mid-June into the end of the month, which has been in relation to competing forces; positive economic data/ strong retail demand/ support from the authorities on the one hand and the rise in COVID-19 cases on the other.The strong rally from mid-May into the first half of June, was driven to some extent… Continued

Forex Brokers in your location