We’ve got a whole bunch of flash PMI reports lined up from the Eurozone this week!
What are markets expecting and how can the results affect ECB interest rate hike plans?
More importantly, how might EUR pairs react?
Event in Focus: Euro Area Flash Manufacturing & Services PMIs
A purchasing managers index (PMI) comes from a survey conducted among a few hundred purchasing managers in major business sectors, such as the manufacturing and services industries.
An index reading of 50.0 and above hints at optimism and industry expansion, while a reading of 49.9 and below denotes pessimism and possible industry contraction.
While survey companies like S&P have manufacturing and services PMIs for the Eurozone, PMI trends from Germany and France – the Eurozone’s largest economies – also typically influence EUR’s price action.
When will the reports be released?
August 23, 2023, Wednesday (7:15-8:00 am GMT)
Use our Forex Market Hours tool to convert GMT to your local time zone.
What are markets expecting?
(as of Aug. 21, 2:50 pm GMT)
French S&P Global Manufacturing PMI Flash: 45.2 forecast vs. 45.1 previous
French S&P Global Services PMI Flash: 48.5 forecast vs. 47.1 previous
German S&P Global Manufacturing PMI Flash: 38.2 forecast vs. 38.8 previous
German S&P Global Services PMI Flash: 51.5 forecast vs. 52.3 previous
S&P Global Manufacturing PMI Flash: 42.6 forecast vs. 42.7 previous
S&P Global Services PMI Flash: 50.7 forecast vs. 50.9 previous
Previous Releases and Risk Environment Influence on EUR
Jul. 24, 2023
Action/Results: Much like in the June release, the Eurozone’s PMI reports showed consistent weaknesses. That is, French, German, and Eurozone’s manufacturing and services PMIs ALL missed market estimates and printed even lower readings in July.
The undeniable deterioration of business activities in the Eurozone dragged EUR sharply lower in the first hour of the report. Unlike in June, however, EUR barely saw retracements before ending the day lower than its Asian session prices.
Risk environment and Intermarket behaviors: The PMI reports were released on a Monday and helped set the not-so-hawkish expectations for the ECB decision scheduled later in the week.
Luckily for risk-takers, China’s Politburo also announced its support for a “proactive fiscal policy” which helped push “riskier” bets like AUD, copper, and iron ore higher ahead of other top-tier market events.
Jun 23, 2023
Overlay of EUR vs. Major Currencies Charts by TV
Action/Results: ALL of the closely watched PMIs in the region missed their estimates in June. France’s manufacturing PMI dipped to a 37-month low while its services PMI dropped to a 28-month low. Germany’s manufacturing sector hit a 37-month low while its services sector dropped to its lowest in three months. In the Eurozone, manufacturing PMI weakened to a 37-month low while its services PMI hit a five-month low. Yikes!
The overwhelmingly disappointing PMI results dragged EUR sharply lower during the hour of the release. However, the common currency also managed to pull back from its losses by at least 50% by the U.S. session started and traded in tight ranges until the day ended.
Risk environment and Intermarket behaviors: Traders were focused on rate hikes from other major central banks driving capital towards the Greenback and risk sentiment leaning negative. When the weak Eurozone’s PMI released, brought the spotlight to the region right before the week ended, emphasized the global recession narrative a bit more to give USD and gold a small boost while putting pressure on bond yields, oil, and equities.
Potential EUR price action:
Risk sentiment probabilities
Concerns over China’s growth and the impact of a prolonged period of high interest rates in major economies like the U.S. and U.K. kept a lid on risk-taking recently.
Traders are a bit more positive to start the week, but risk sentiment moves will likely be limited (barring any major news surprises) ahead of the PMI event as traders hold off on big bets ahead of highly anticipated statements from Fed Chairman Powell and ECB President Lagarde during their Jackson Hole speeches on Friday.
Potential Base Scenario
Based on the most recent PMI releases, the euro tends to react with strong directional bias, especially if the majority of the results point to either strong improvements or another notable downturn in activity.
Do note that the ECB recently shifted to a less hawkish stance in their July policy decision, as ECB’s Lagarde hinted that they wouldn’t mind sitting on their hands for the rest of the year.
With that, signs of weakness or stagnation in the manufacturing and services sectors of Germany and France would give more reasons for the ECB to stop its recent tightening cycle sooner than later.
This could translate to a wave lower for the euro against currencies with relatively hawkish central banks (USD, GBP) or lower-yielders like CHF and JPY if risk aversion extends its stay.
Potential Alternative Scenario
A strong upside surprise among the business PMI readings could be enough to revive ECB rate hike hopes for September, possibly spurring a bounce higher for euro pairs.
In this case, keep an eye out for long EUR plays against currencies with dovish central banks (JPY, NZD, CAD, AUD) or for those bogged down by weak flash PMI reports later in the week.
