Eurozone Services Activity Near Stall
Looking back, the Eurozone services PMI miss in March of 2025 was a significant early warning. The reading of 50.1 showed a near-stall in the service sector, kicking off the slowdown we experienced in the latter half of last year. This weakness was a primary factor in the European Central Bank’s decision to cut interest rates. That economic softness a year ago is a sharp contrast to the data we see today in March 2026. The latest flash services PMI has rebounded strongly to 52.8, and with February’s inflation figure at 2.2%, the market is now pricing out any further ECB rate cuts. This represents a major shift in expectations for the year ahead. Given this reversal, we should consider buying volatility through options on the Euro Stoxx 50 index. The change in central bank policy expectations from easing to neutral is likely to create more uncertain price movements. This environment suggests positioning for higher short-term interest rates. Therefore, derivative traders could look at short positions in Euribor futures contracts, betting that the path for rates is now sideways to higher. This view also supports a strengthening euro against the US dollar. We see potential in long EUR/USD forward contracts or call options over the next several weeks.Trading Implications For Rates And Fx
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