Should you sell the euro amid the Eurozone's worst private-sector performance in 3 years?

The PMI data released earlier today revealed that Europe’s economy is in a tough place. Things are moving from bad to worse, as the PMI fell to 46.5 in a weak demand environment.

This is the year’s low, marking another miss and the worst private-sector performance in almost three years.

Unsurprisingly, the common currency, the euro, dropped after the release. It erased all the gains made at the start of the trading week and still trades with a weak tone after the London close.

EUR/USD dropped more than 100 pips points from its highs. The same did EUR/JPY or EUR/AUD. The euro got smashed today – just two days before the ECB’s meeting.

So, should you sell the euro ahead of the ECB meeting and in light of the weak PMI data?

Eurozone’s Flash PMI data at the lows of the year

The PMI is interpreted in relation to the 50 level. A print above 50 indicates an economic sector that expands, while one below a sector that contracts.

The actual PMI data would not be so bad if the overall picture was a bit brighter. Only, it isn’t.

All subindices point to the downside. Moreover, the manufacturing has been in a slump for sixteen months.

Furthermore, the services sector has been in a slump for three months. Finally, the service activity is on a steeper downward slope than the previous month.

In other words, nothing encouraging came out of today’s economic data, justifying the common currency’s decline.

So, is it fair to assume that the ECB will be on hold in a couple of days? I would say so, yes.

But it won’t be an easy message to send to markets because price increases in the services sector remain very high. Because the ECB’s mandate centers around price stability, inflation is the one thing that matters the most to the central bank.

Summing up, the economic data favors more downside for the euro, but the price increases are a problem for the ECB. Expect chaotic movements during the ECB press conference, with the recent lows below 1.05 likely to be tested again.