The euro was under pressure at the end of last week, and the pound experienced a similar dynamic. One reason was the eurozone GDP release for Q3 published last Friday. Growth came in at 0.4% q/q and 1.3% y/y versus forecasts of 0.2% and 1.1%. But recall that the eurozone economy expanded by 0.6% in Q2, so despite beating consensus this quarter, the pace of growth is slowing—and that is bad for the European economy.

Other data did not add optimism for the euro. Unemployment was forecast at 6.4% but rose to 6.5% in September. Worse for the euro, Germany's consumer price index rose 0.2% m/m versus expectations of 0.1% after a 0.6% jump in September, while French consumer prices surged 0.4% after a 0.3% decline the month before. Taken together, these prints show an uneven inflation backdrop across European countries, and now everyone will wait for eurozone inflation data because they will indicate how the European Central Bank plans to act next.

Later in the session pressure on both the euro and the pound increased as the dollar came back into demand. Fed officials Alberto Musalem and Mary Daly spoke, and their positions were clear. Rates are likely to rise again in December, and the market continues to price that scenario. The outlook beyond that is still unclear because they did not clarify Fed Chair Kevin Warsh's stance, who spoke cautiously after last week's hold. Nevertheless, the market is tilting to a firmer path, which is bullish for the dollar and negative for risk assets.

Now let us look at the economic calendar, which is busy with eurozone releases today—manufacturing PMIs for October. France is expected at 49.3 points, i.e., below 50 and indicating contraction. Germany is forecast at 54.2, a decent print given earlier industrial struggles. For the euro area overall, the manufacturing PMI is forecast at 52.4, implying activity will continue to grow. The UK manufacturing PMI is expected at 52.8, also a solid reading that could support both the euro and the pound.

A similar story awaits the US: the US manufacturing activity index is forecast at 56.0, and the ISM manufacturing index at 54.7 after 54.5. Overall the readings look good and indicate healthy US growth, reinforcing the Q3 GDP message. Strong US data could tilt the scales back toward dollar buying.

EUR/USD technicals: for shorts we have 1.1205—a false break. There is a cue to open shorts targeting 1.1172. If bulls fail there, a break and hold below this band will increase pressure and send the pair to 1.1138, where I would consider longs on a false break. The farther seller target is 1.1108, where I buy a rebound for 25–30 pips. Longs from 1.1172 and 1.1138 are only in the event of false breaks. If sellers fail at 1.1205, the euro could rally toward 1.1231 and then to 1.1254, where I sell into the bounce for 20–25 pips. Shorts from 1.1231 and 1.1205 also require false breaks.

GBP/USD: on good data the bulls will try to regain 1.3404—only a false break there gives a reason to short. If no follow-through occurs, delay shorts until last week's high at 1.3430, which is also a shorting area if a break does not hold. Short bounces from 1.3467 target 30–35 pips. I advise caution on longs this week; markets will likely be more hesitant early in the week. Consider longs on false breaks from 1.3374 and 1.3346, and buy bounces from 1.3325 for 20–25 pips.

I expect the main test for the euro today will be the combination of European PMIs and the US ISM. I would not be surprised if strong US figures again push the dollar higher, especially amid talk of a December hike. For the pound the outcome depends on the UK PMI: a strong print will give bulls a chance to hold above recent levels.