Citigroup has reinforced its negative outlook on the EUR/USD pair, pointing to recent underwhelming economic data from Europe.
Earlier this week, reports revealed a significant contraction in eurozone business activity. The HCOB’s initial eurozone Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 48.9 in September, down from August’s 51.0. This marks the first time the index has fallen below the 50 threshold, which indicates economic contraction, since February.
The slowdown seems widespread, with Germany—the eurozone’s largest economy—facing a deepening decline. Meanwhile, France, the bloc’s second-largest economy, slipped back into contraction following the temporary boost from August’s Olympics.
Citi highlighted the risks to eurozone growth, noting that the region’s manufacturing sector continues to struggle, and one-time factors that temporarily boosted services, such as the Olympics, are now fading.
“While the global manufacturing slump affects many regions, the U.S. appears to be more shielded from the downturn compared to Europe,” Citi remarked. “With markets now anticipating Fed rate cuts after the September FOMC meeting, attention could turn to whether the European Central Bank (ECB) is lagging, especially if European data continues to weaken while U.S. jobless claims stay low.”
Additionally, Citi pointed to the potential impact of the upcoming U.S. elections as a negative factor for the euro. Polling in key swing states remains close, which could lead to increased demand for the U.S. dollar, especially with the next U.S. jobs report not scheduled until October 4.
“We remain positioned short on EUR/USD in both spot and options markets,” Citi concluded, with a reference rate of 1.1112 for spot trading.
At 07:35 ET (11:35 GMT), EUR/USD increased by 0.1%, reaching 1.1122.
