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European Economic Sentiment Indicator Hits Lowest Level Since January 2017

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The ECB received yet a further blow on the economic data front this week as the European Commission’s economic sentiment indicator for December highlighted weakness.  The reading, which posted a decline over every month of 2018, fell back to 107.3 in December, down from the prior month’s 109.5.

Furthermore, the data reading, which came in well below the market’s forecast of 108.2, is now sitting at its lowest level since January 2017.

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Declines In All Major Economies

While France registered a significant decrease of -2.0 in response to the Yellow Vest protests which have been raging since late November, declines were also visible across the rest of the main Eurozone economies.

Germany posted a -1.9 contraction, Italy a -1.4 contraction, the Netherlands a -0.3 contraction while Spain posted the biggest contraction of -3.

Most Sectors Post Declines

The breakdown of the data makes for dismal readings, highlighting weakness across most sectors. The export-led manufacturing sector was down -2.3 due to slower growth in emerging market economies while the services sector too posted a decline of -1.4, alongside a -2.3 reading in consumer confidence.

Indeed, the only positive among the data was the minor pick up in retail trade confidence, echoing the positive November retail sales reading released this week. However, with forward-looking indicators such as order bookers and hiring intentions having declined, the outlook is considerably diminished and once again adds further dovish pressure to the market’s current ECB rate-hike pricing.

Technical Perspective

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The EURUSD picture looks conflicted as the current consolidation within a longer-term bearish channel suggests an eventual downside break, though the bullish RSI divergence at the recent channel lows suggests upside risks. Watch out for a possible upside break above the current highs.

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