Eurozone economy seems to be falling into a recession, UK economic outlook seems poor

Summary:

• The Eurozone PMIs showed that the bloc's economy contracted in November.
• Despite the UK economy contracting in November, the GBP extended a short-term recovery.
• CAD fared better than Sterling during the first sessions of the week

Eurozone PMI data didn’t beat expectations by enough

The market is reflecting mixed signals for this currency pair. The Eurozone PMIs showed that the bloc's economy contracted in November, but the magnitude of the decline was less severe than anticipated by the markets. The S&P Global Purchasing Managers Index (PMI) for manufacturing registered at 47.3, exceeding the consensus estimate of 46.0 and up from the previous month's reading of 46.4.

Unfortunately for the euro, the positive data was insufficient to quell the bearish sentiment surrounding the currency, including recessionary risks and the ECB hawks' unwillingness to support a 75 basis point interest rate hike at the upcoming meeting. The day ahead should see increased volatility for the EUR/USD due to the prominence of US data.

✕ EUR/USD Price Chart

UK economic outlook looks bleak

The market is reflecting bearish signals for this currency pair. Following the release of statistics showing that, despite the UK economy contracting in November, corporate forecasts for the coming year increased from a 30-month low, the British pound extended a short-term recovery. The most recent S&P Global PMI readings indicated that economic activity continued to decline for another month, but the data was better than anticipated, so this would be a generally favorable development for markets.

However, this downturn was predicted, and as economist at Berenberg Kallum Pickering puts it, "the recession is terrible, but not becoming worse." This remark is critical for the Pound given the dire economic prognosis for the UK.

✕ EUR/GBP Price Chart

GBP/CAD outlook improved

According to technical analysis from Scotiabank, the outlook for the Pound to Canadian Dollar exchange rate has improved further in recent trading. Sterling may now be able to hit some of its best levels since the end of the first quarter after gaining ground over the 1.57 mark last week. Although some believe this is likely merely a temporary setback for the Pound, the Canadian Dollar fared better than Sterling during the first sessions of the week after an over two month surge in GBP/CAD stopped following a run-in with technical support on the charts late last week.

✕ GBP/CAD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com