Should you buy or sell the euro after today’s PMI data?

By: Mircea Vasiu
Mircea Vasiu
When not working, Mircea likes to play football and read. He's a sports fan, always on the move, and… read more.
on Jun 23, 2022
  • Euro area manufacturing and services PMIs missed expectations
  • EUR/USD dropped about 100 pips
  • 1.08 is a pivotal level

Today’s European data focused on the manufacturing and services PMIs. They both disappointed, coming out much lower than expected and triggering fears of an imminent recession in the Euro area.

The PMI stands for Purchasing Managers Index, and the data is interpreted against the 50 level. Any print above 50 shows a sector expanding, thus being a positive for the local economy.

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On the contrary, when the PMI dives below 50, it shows a sector that contracts. Therefore, traders and investors prepare for the worse.

So is a recession in the Euro area imminent? Moreover, should you buy or sell the euro after today’s disappointing PMI data?

Highlights of today’s European PMIs

The Euro area manufacturing and services data was released earlier today. Flash Manufacturing PMI missed expectations, coming out at 52 on 53.9 expected.

Also, the Flash Services PMI missed expectations as well – 52.4 vs. 54.6.

While both still reflect expansionary sectors, the slowdown in economic activity is worrying. Will the Euro area head to a recession?

Judging by how the common currency reacted, it appears that investors believe so.

How did the common currency react?

The EUR/USD dropped almost one hundred pips on the poor PMI data. It trades close to the 1.05 level after hovering around 1.06 earlier today.

The big question for the EUR/USD traders is what the pair will do from here. Bulls may argue that a double bottom is in place.

However, while it certainly seems so, a double bottom is not confirmed unless the price moves back above 1.08 area. If not, the pressure mounts for the pair to make another lower low.

As such, the 1.08 area is a pivotal one. A daily close above should open the gates towards 1.12, while the pressure remains while below.

At a time when the ECB is preparing to hike the monetary policy, today’s PMIs reflect that the ECB may have missed the window of hiking the rates.

All in all, the EUR/USD remains heavy despite the ECB’s hawkishness. As the PMIs showed, recession in Europe is likely, as the conflict in Ukraine weighs on the European economies.

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