Eurozone’s private sector stagnates again

Economic activity across the euro area remained sluggish in February, fueling concerns that the region is still struggling to break free from stagnation.

The Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, stayed at 50.2, just barely above the 50-mark that separates expansion from contraction. Analysts had expected a slightly higher reading of 50.5.

The euro continued its earlier decline, trading 0.2% lower at $1.0476, as investors increased bets on European Central Bank (ECB) rate cuts. Money markets are now factoring in 78 basis points of easing this year, up from 74 basis points on Thursday. Meanwhile, bond yields remained lower, with Germany’s 10-year yield down three basis points to 2.50%.

Several factors have weighed on European economic growth, including ongoing manufacturing struggles, political instability in key economies, and global uncertainty—from the war in Ukraine to the threat of new U.S. trade tariffs. Recent signals from President Donald Trump’s administration about scaling back support for European defense have further pressured the region to increase military spending.

While the latest PMI survey suggests that the immediate impact of Trump’s tariff threats on the euro-area economy has been limited, uncertainties remain high as details of potential trade policies remain unclear. Beyond trade concerns, the eurozone’s economic expansion has been weak for months, reinforcing the case for further monetary easing.

Since June, the region’s PMI has hovered around the 50-mark, with multiple ECB rate cuts helping to prevent an outright recession. However, despite expectations of inflation returning to 2% this year, consumer demand and business investment have yet to show significant improvement.

Germany has shown some signs of resilience, just ahead of Sunday’s snap election, where conservative frontrunner Friedrich Merz is expected to push for reducing bureaucracy and boosting investment. The country’s PMI reading surpassed forecasts, reaching 51, signaling moderate expansion.

UK retail sales post biggest increase since May, driven by food purchases

Retail sales in the UK started the year on a stronger-than-expected note, as households increased spending on food despite broader economic caution.

According to the Office for National Statistics (ONS), the volume of goods sold in stores and online rose by 1.7% in January, partially offsetting December’s revised 0.6% decline during the holiday season. This marks the biggest monthly increase since May and exceeded economists’ expectations of a 0.5% gain.

Food sales were particularly strong, recording the biggest jump since March 2020, when the pandemic first drove consumers to stockpile essentials. Supermarkets, specialty food stores like butchers and bakeries, and alcohol and tobacco retailers all reported higher sales, as more households opted to eat at home in January.

While headline retail sales figures may offer some relief to the Labour government, which is battling concerns over economic stagnation, the breakdown of data indicates that cautious spending habits persist. Consumers remain wary of potential economic shocks, particularly as Chancellor of the Exchequer Rachel Reeves faces scrutiny over October’s budget, which included payroll tax increases that some major employers warned could lead to job cuts.

DXY at support

The US Dollar Index experienced a sharp decline yesterday, reaching a low of 106.32 in line with the expectations of the Time/Price method. However, it has bounced back today, climbing to 106.70 ahead of several significant economic releases scheduled for later today. Despite this temporary uptick, downside pressure is expected to resume in the coming days. The Time/Price method still indicates a potential further decline over the next few weeks, targeting the 105.60 range. Any upside retracement is likely to be capped below 107.50.

EURUSD retesting the 1.05 resistance

The Euro briefly advanced above 1.05 during yesterday’s trading but has eased back today, dropping to a low of 1.0465 ahead of the US session, following the release of PMI data from Europe. The 1.05 level now serves as a strong resistance that must be broken to allow for further gains. If this resistance holds, the risk of another decline remains significant, with the next support level at 1.0400.

AUDUSD reaches highest level this year

The Australian dollar (AUD) continues to rally, reaching a new high for the year not seen since mid-December, hitting 0.6400. This level aligns with the expectations of the time/price method. However, 0.6400 is considered a key resistance level that must be broken for the upward rally to gain further strength. Otherwise, a short-term retracement is expected back towards the 0.6350 to 0.6300 range for now.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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