EUR/USD pares losses after alarming US manufacturing PMI and jobless data

The EUR/USD rose as the market reacted to the new jobless claims data from the Labour Department. The numbers showed that millions of Americans have filed for unemployment benefits in the past five weeks. The market also reacted to the weak manufacturing PMI and housing data.

US jobless claims tally rises

The number of Americans filing for unemployment benefits rose by more than 4.427 million in the previous week. This was lower than the 5.25 million that was reported last week. The data brings the total number of Americans who have filed for jobless claims in the past five weeks to more than 26 million. This number is higher than the 25 million jobs that the US created after the Great Recession of 2008/9.

Meanwhile, the continuing jobless claims rose by more than 4 million to 15.9 million. In the report, the department said:

The advance seasonally adjusted insured unemployment rate was 11.0 percent for the week ending April 11, an increase of 2.8 percentage points from the previous week’s unrevised rate. This marks the highest level of the seasonally adjusted insured unemployment rate in the history of the seasonally adjusted series.

Analysts polled by Reuters were expecting initial jobless claims to be around 4.5 million. Analysts at Morgan Stanley (NYSE: MS) had predicted that the claims would rise by 3.8 million. Those at Barclays, Goldman Sachs (NYSE: GS), and Bank of America (NYSE: BAC) expected the claims to be at 4.5 million, 4.3 million, and 4 million respectively.

The jobless claims data released today was lower than the peak of 6.8 million that was released in March. Economists expect the tally to keep falling in the coming weeks. Also, they expect the April unemployment rate to jump from the current 4.4% to double digits. According to Morgan Stanley, the rate could rise to 16%, which is the highest level since the Great Depression.

Worse, the ongoing earnings season has shown that more companies are in trouble. Just last week, data from all the big banks showed a record drop in earnings. Similarly, financials released this week by companies like Baker Hughes and IBM showed how bad companies are struggling. Analysts at Oxford Economics predict that corporate earnings could drop by more than 25%. This will call for more layoffs as companies restructure.

The rising number of jobless claims is also because the recently-passed CAREs act expands the number of people who are eligible for the claims. More so, many companies have asked their employees to take advantage of the support from the government.

US manufacturing PMI disappoints

The EUR/USD pair also declined after the Markit released weak flash manufacturing PMI data from the US. The data estimates that the PMI dropped to 36.9 in April. This was lower than the PMI data of 49.2 that was released earlier this month.

It was also the lowestthe PMI has been in 133 months. A PMI number below 50 is usually a sign that the industry is contracting. Meanwhile, the crucial services PMI data declined to a new record low of 27.0 from the previous 39.8. As a result, the composite PMI declined to a record low of 27.4 In a statement, Chris Williamson said:

“The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April. The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey.”

This data came a week after another number by the Fed showed that industrial production in the US had dropped to the lowest level since 1946. Another data by New York Fed showed that manufacturing activity in the state had fallen to lowest level since 1994.

These numbers show how strained the US economy is because of the coronavirus pandemic. Most companies have been forced to close their businesses in a bid to combat the illness.

US housing market jitters

The EUR/USD also declined because the housing market is also in trouble now that most people are not buying homes. Data from the Census Bureau showed that new home sales dropped by more than 15.4% in March. The units sold were 627,000 down from the previous 745,000. The decline ended a relatively strong trend that started in June last year when 604,000 new homes were sold. The number reached a peak of 800,000 in January this year.

The new home sales data came two days after we received the existing home sales numbers. Similarly, these homes declined by 8.5% in March after rising by 6.3% in the previous month. It was the worst month since June 2015. Analysts expect the US housing market to face challenges in the coming months as demand falls.

EUR/USD technical forecast

The EUR/USD pair rose after the weak jobless claims data from the US. It also reacted to the weak manufacturing PMI data from Europe. On the hourly chart, the pair rose after it formed a bullish doji candlestick pattern four hour ago. I expect the pair to continue rising, and possibly test the 23.6% Fibonacci retracement level at around 1.0810. If it does this, the pair will be re-entering the channel shaded in red above.