Investing.com – Citigroup Inc. reinforced its bearish stance, citing recent disappointing European economic activity data.
Data released earlier this week showed that business activity in the eurozone contracted sharply this month.
The preliminary HCOB business confidence index, compiled by S&P Global, fell to 48.9 this month from 51.0 in August, below the 50 mark that separates growth from contraction for the first time since February.
The economic slowdown appears to be broad-based, with Germany, Europe’s largest economy, deepening its downturn, while France, the bloc’s second-largest, has slipped back into contraction after a boost from the Olympic Games in August.
The bank cited downside risks to eurozone growth, saying manufacturing remains a drag while one-off boosts to the services sector (eg the Olympics) may be on the way to reversing.
“Furthermore, while the manufacturing recession is a global issue, the U.S. remains more isolated than Europe,” Citigroup said. “With markets eyeing Fed cuts after the September FOMC meeting, we believe the focus could shift to whether the ECB is lagging behind the curve, especially if European data continues to weaken while U.S. initial claims remain low.”
The backdrop is also that US election risks are expected to resurface as a headwind for the euro; polls in swing states are close (we expect some pricing in of the USD premium) and the next US jobs report is not due until October 4th.
“We continue to sell EUR/USD in both spot and options,” Citigroup said, setting a ceiling on the reference spot price at 1.1112.
At 07:35 ET (11:35 GMT), the EUR/USD pair was up 0.1% at 1.1122.