EUR/USD hold gains as Eurozone manufacturing PMI ticks up

EUR/USD hold gains as Eurozone manufacturing PMI ticks up

  • The EUR/USD held gains as the market reacted to positive Eurozone manufacturing and services PMIs.
  • The manufacturing PMI rose to 40.6 from the previous 32.6 while services rose from 12.0 to 28.7.
  • The numbers show business activity is improving as EU countries reopen.

The EUR/USD was little changed as the market reacted to the mixed manufacturing and services PMI data from Europe. Investors are also optimistic in the funding deal made by Angela Merkel and Emmanuel Macron.

EUR/USD rises
EUR/USD hold gains on positive EU data

Eurozone manufacturing PMI show improvements

The manufacturing and services sector in the eurozone improved but remained in the contraction zone in May.

Data compiled by IHS Markit showed that the manufacturing PMI increased to 39.5 in May. That increase was better than the previous contraction of 33.4. It was also better than the consensus estimates of 38.0.

A PMI figure below 50 is usually a sign of contraction. The eurozone PMI has been contracting in the past three consecutive months.

According to Markit, forward-looking indicators improved in May. Business expectations for the next twelve months improved for the second straight month. At the same time, costs of inputs declined while the average prices charged for goods and services contracted for the third straight month.

The improvement in manufacturing was evenly spread across the eurozone member states. In Germany, the manufacturing PMI rose to 36.8 while in France, it rose to 40.3.

Service PMI also improved

The EUR/USD pair also reacted to positive services PMI data. In the eurozone, the services PMI increased to a three-month high of 28.7 from the previous 12.0.

As with the manufacturing sector, the recovery in services rose across all countries. In Germany, the services PMI rose to 31.4 while in France, the services PMI increased from the previous 10.2 to 29.4.

According to Markit, the industry was hindered by a significant decline in the hotels, restaurants, travel, and other consumer-facing industries. At the same time, jobs in the sector continued to be cut at the fastest pace ever.

Consequently, the composite PMI, which includes the manufacturing and services activity rose to 30.5 in May from the previous 13.6. In France and Germany, the figure rose to 30.5 and 31.4 respectively.

In a statement, Chris Wiliamson of Markit said:

“The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April.”

This improvement happened mostly because most countries in the eurozone have started to ease their restrictions. Barring any second infections, analysts expect the region to return to growth in the third quarter.

Meanwhile, the EUR/USD is positive because of the truce between Angela Merkel and Emmanuel Macron. The two sides agreed on a major $540 billion financing plan that will help the most affected countries.

Other numbers have been less optimistic. Yesterday, consumer price index data showed that inflation dropped to the lowest level since 2016. But, there are signs that this inflation will start improving as people start to spend.

EUR/USD technical outlook

EUR/USD technical forecast

The EUR/USD pair held on to gains as investors remained optimistic about the eurozone’s recovery. On the weekly chart, the price is below the 100-day and 50-day exponential moving averages. The price is also between the 23.6% and 38.2% Fibonacci retracement level. The pair also appears to be forming a bearish pennant pattern, which is an indicator that the price may resume the downward trend eventually.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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