Euro Plunges as European Consumer, Industrial Sentiment Turns Increasingly Pessimistic

After running in to resistance at 1.3250, EUR/USD pulled back sharply throughout the day to test support at the 50 percent fib of 1.2328-1.3296 at 1.2813. The pair managed to recover above 1.2900 later in the day, but the fundamentals of the Euro-zone remain resoundingly bearish.

The European Commission reported this morning that their index of consumer confidence plummeted to a nearly 15-year low of -24 while industrial confidence dropped to match the lowest level in more than 12 years at -18. Nearly every sector in the region is suffering in the wake of restrictive monetary policy, rising unemployment, tight credit conditions, and the global economic slowdown. As a result, Friday Eurostat estimate for Euro-zone CPI will be very important.

Indeed, the figure is projected to show at 6:00 ET that inflation growth eased to a 3.2 percent pace in October from 3.6 percent. Given European Central Bank President Jean-Claude Trichet more bearish stance on economic growth and the bank participation in the October 8 coordinated rate cuts, a weaker-than-expected CPI reading could exacerbate the market speculation that the ECB will cut rates next week on November 6. We also have to consider that the Euro-zone unemployment rate will also be released at the same time and is forecasted to hold steady at 7.5 percent. Considering the dismal conditions plaguing the region economies, there is a risk that the unemployment rate will tick higher, and combined with a drop in CPI, the euro could plunge.