Berlin, Germany. Open Market. Image source: Irina Pommer © 123RF.com
Worsening epidemic conditions in Europe continue to pose a significant threat over most economies' tentative recovery in the Eurozone, despite the ongoing vaccine rollout.
In data published earlier, Germany and France - the largest and `second largest economies in the Euro Area, respectively - both delivered data underpinning the two countries' services sectors' continued contraction.
Germany Services PMI. Image source: TradingEconomics.com
The German Services PMI edged to 46.8 points in January, which surpassed the initial market expectations for a deeper slump to 45.1 points but still fall short of the 50-point breakeven point. This marks the fourth consecutive month of faltering industrial output.
Meanwhile, French services hurdled to 46.5 points in January, below the 48.3 points consensus forecasts, and way below December's 49.1 index points, say the Markit Institute. As can be seen in the graph below, France's industrial recovery is much more uneven than the one observed in Germany.
France Services PMI. Image source: TradingEconomics.com
The arguably second epidemic wave in Europe still hasn`t climaxed, which means governments are forced to keep the tight containment measures in place. Unfortunately, this rigid policy has a huge adverse impact on industrial activity, which staves off growth, particularly in the services sector.
Germany's services data comes just days after the publication of the weaker-than-expected inflationary data, which raises the uncertainty factor in Europe's biggest economy.
German stocks reacted negatively to the news with the DAX index sliding by nearly 1 per cent so far into today's trading session. Our recent analysis anticipated such a correction of the index.
Meanwhile, the Euro continues to retaliate against the greenback, despite the longer-term prevailing bearish sentiment.
As can be seen on the hourly chart below, the EURUSD continues to advance north within the boundaries of an ascending channel (flag) and is currently attempting to break out above the major resistance level at 1.21700. The latter could serve as a potential turning point for the underlying direction of the price action.
The MACD indicator recently developed a bearish crossover, which could induce such a turnaround, provided that bearish sentiment continues to increase in the short-term. At the same time, the underlying trading volume continues to depreciate.
EURUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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