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EUR/USD Bounce on Firmer PMI Unlikely to be Maintained

EUR/USD Bounce on Firmer PMI Unlikely to be Maintained

Justin McQueen, Strategist

EUR/USD Analysis and Talking Points

  • Eurozone PMI Surprises to the Upside
  • However, Most Responses Are Prior to Lockdown Extension
  • Marginal Reprieve for the Euro Unlikely to be Maintained

Main Point: Flash PMI’s in the Eurozone have printed better than expectations, which may come as a slight surprise given the recent announcement of lockdown measures being extended. However, it is important to note that the flash survey, which had been conducted between March 12-23, therefore most of the responses had been collected prior to the announcement on lockdown measures. In turn, I would not read too much into the figures and expect the Euro to remain soft. Nonetheless, the French figures pointed to a softer contraction for the first time in three months, however, French business activity has remained in contraction since September. Elsewhere, German Manufacturing PMI hit a record high at 66.6 with some firms benefitting from fewer restrictions at the time. Meanwhile, inflationary pressures have risen yet again amid a near-record rise in input costs, reinforcing the view that near-term transitory spikes of inflation is to be expected going forward.

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Eurozone PMI Bounces Back

Market Reaction: In reaction to the better than expected PMI reports, the Euro has seen a reprieve with EUR/USD rising from 1.1812 to 1.1830. However, the move is marginal at best and unlikely to detract from the overarching theme that the single currency remains pressured from the fact that the EU is heading into a third Covid wave, a sluggish vaccine rollout program, while Turkish Lira tail risks are also a concern.

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EUR/USD Price Chart: Daily Timeframe

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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