Investing.com – Citigroup reiterated its bearish stance, citing recent disappointing data on economic activity in Europe.
Data released earlier this week show economic activity in the eurozone has fallen sharply this month.
S&P Global’s preliminary HCOB index fell to 48.9 this month from 51.0 in August, marking the first time since February that the indicator has breached the 50-point mark separating growth from recession.
The economic slowdown appears to have been broad-based: Germany, Europe’s largest economy, saw its recession deepen, while France, the bloc’s second-largest economy, fell back into recession after the August Olympics.
The bank pointed to risks to growth weakening in the eurozone, saying the manufacturing sector remains a drag and one-off support for services (e.g. the Olympics) could be reversed.
“Moreover, while the manufacturing crisis is a global issue, the US remains more isolated than Europe,” Citi said. “With markets accelerating Fed cuts following the September FOMC, we think attention could shift to whether the ECB is lagging, particularly if European data continues to weaken and US initial claims remain subdued.”
The backdrop for the euro could also be the US election risk, which could return as a headwind; polls in key states are showing good results (we expect some premium for a USD rally to be priced in) and the next US employment report is not due until 4 October.
“We remain short EUR/USD in both spot and options,” Citi said, setting the maximum reference rate at 1.1112.
At 07:35 ET (11:35 GMT), EUR/USD was up 0.1% to 1.1122.
