• Joel

Strong Eurozone PMIs Deliver BIG EUR Boost

June (Flash) Eurozone PMI data this morning came in substantially firmer than expected, delivering a decent sized boost to EUR.

Prior to the release of the French data at 0815BST/0315EDT, EURUSD was trading around the 1.1260 mark. By the time the market had digested the 0900BST/0400EDT Eurozone aggregate PMI numbers, EURUSD had jumped to around the 1.1300 level (note, resistance around 1.1300 was firm, and EURUSD has since come off highs to trade around 1.1290).

France flash PMIs (June)

  • Manufacturing 52.1 v 46.0 exp. (prev 40.6)

  • Services 50.3 v 44.2 exp. (prev 31.1)

  • Composite 51.3 v 46.3 exp. (prev 32.1)

“The latest PMI data suggests that France is finally entering a period of recovery as we move past the peak of the coronavirus crisis. The further loosening of restrictions has allowed some semblance of normality to resume, with many businesses and workers returning to work, particularly in the manufacturing sector" said Markit.

As a reminder, when PMIs move above 50, that is typically associated with a sector of the economy (or the economy more generally) being in expansion. Thus, today’s French PMI data indicates that the French economy has returned to growth in June, compared to May’s levels.

Germany flash PMIs (June)

  • Manufacturing 44.6 v 41.5 exp. (prev. 36.6)

  • Services 45.8 v 42.0 exp. (prev. 32.6)

  • Composite 45.8 v 44.2 exp. (prev. 32.3)

“June’s flash survey shows the PMI rebounding further from April’s low point and moving to its highest since before the start of the coronavirus outbreak, amid increasing signs of life across the German economy. However, while the loosening of lockdown restrictions has had a positive effect on some parts of the economy, the PMI’s latest reading is still within contraction territory, which shows this is likely to be a protracted recovery as coronavirus-related disruption and uncertainty continue to weigh on demand” said Markit.

In sum, though not as strong as the French data, German PMI data indicates that the German economy is also fairing much better than expectations, in fitting with the idea that the economy has passed it weakest point amid this pandemic (which is thought to have been April), and is on the (slow) road to recovery.

Eurozone flash PMIs (Jun)

  • Manufacturing 46.9 v 44.5 exp. (prev 39.4)

  • Services 47.3 v 41.0 exp. (prev 30.5)

  • Composite 47.5 v 42.4 exp. (prev 31.9)

In sum then, MUCH better than expected data out of the Eurozone that underpins growing expectations that the post-Covid-19 economic recovery in Europe will be faster than feared back in March/April.

This idea of a faster recovery that has been supported recently by stronger than expected US and European data has been key in underpinning the strength we have seen in risk assets such as stocks, AUD, NZD and crude oil over the past two months.

Looking at EUR and FX markets more specifically, the battle between who can outpace each other in the economic recovery will be a key driver of the performance of EURUSD over the coming few months/years.

At the moment, data out of both regions has been better than expected. However, should data begin to show that the recovery in one region is starting the lag that of the other, expect this to be reflected in EURUSD price action; for example, should the current second Covid-19 wave we are seeing in the US begin to hit the economy, while the Eurozone recovery continued unabated, expect to see a general trend higher in EURUSD. 



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