• US October Flash Services PMI rose to 50.9 vs 49.9 expected, highest reading since July 2023
• Eurozone October Flash Services PMI fell to 47.8 vs 48.6 eyed, lowest reading since Feb 2021
• Eurozone October Flash PMI fell to 43.0 vs 43.7 eyed, 16th straight month of contraction

The US dollar rose on both resilient economic data as non-tech earnings impress across the board.  The US flash PMIs came in better-than-expected, clearly outperforming what we saw earlier from Europe.  The data is vindicating the overcrowded stance by dollar bulls, as the US growth exceptionalism trade against Europe is clearly not going away.  Wall Street was expecting the US service sector to fall into contraction but instead it rose sharply.

Strong demand was a strong earnings theme across General Electric, Coca-Cola, RTX, and General Motors, which could mean good news for other industrials and consumer staples. Stock traders will eagerly await Alphabet and Microsoft earnings after the close. 

The fiscal outlook won’t be changing anytime soon, so the focus this afternoon will fall on a 2-year note auction.  Supply demand imbalances have everyone focused on how demand is holding up from these Treasury auctions. Next week’s Treasury refunding announcement could be important as they could reduce auctions at the long end of the curve as they are concerned about the recent moves with yields. 

ECB

Leading up to any ECB rate decision, FX traders are always looking at the latest data points before a key policy decision.  The soft October flash PMIs is the icing on the cake on what will be an easy hold by the ECB.  Inflation is still too high, so ECB’s Lagarde will undoubtedly drive home the higher-for-longer stance.  The southern periphery is flashing warning signs, but the focus will stay with inflation fighting.  PEPP reinvestments will likely remain given the fragility of the outlook with Italy’s debt woes and surging bond yields.   

EUR/USD daily chart:

The recent euro rebound was unable to rally above the 50-day SMA, which suggests the longer-term bearish trend remains intact.  Downside momentum however may struggle until we get beyond the ECB policy meeting.  Given the weakening outlook, the ECB could show hesitancy to start shrinking its €1.7 trillion bond holdings.  If the ECB is not convincing that they could still raise rates in future meetings, the euro could easily break below the recent lows.