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Eurozone PMI unlikely to allay growth concerns as euro drifts sideways

euro money | EconAlerts

The flash PMI releases for the Eurozone are due on Friday at 08:00 GMT but the indicators are not expected to inject much life into the single currency as growth in the region remains moderate at best. IHS Markit’s PMI gauges for the euro area’s manufacturing and services sectors have been losing steam since the turn of the year and despite steadying recently, there seems to be little evidence of a return to the impressive growth rates enjoyed in the second half of 2017.

The Eurozone manufacturing PMI is forecast to decelerate further in September, declining to a 10-month low of 54.4 in the preliminary estimate from 54.6 in August. The services PMI is expected to hold steady at 54.4, while the composite index, which includes both the manufacturing and services PMI, is projected to dip slightly to 54.4 in September’s flash readings.

Eurozone PMI | EconAlerts

The figures would translate to GDP growth of about 0.4% quarter-on-quarter for the third quarter, keeping pace with the same rate as in the first half of the year. While the European Central Bank maintains that Eurozone growth remains broad-based and is so far sticking to its timeline of ending its asset purchases at the end of the year, there are concerns among some analysts as well as from within the ECB’s own Governing Council about the growth outlook.

ECB chief, Mario Draghi, told reporters at the September post-meeting news conference that the risks to Eurozone growth were “broadly balanced”. But with the trade war between the US and China showing no sign of abating anytime soon and weakness in emerging market economies, there are significant downside risks to growth. Another potential headache for ECB policymakers is the political situation in Italy where tensions are high in the coalition government over the upcoming budget, as the populist 5-Star Movement refuses to drop their demands for a universal citizens income, which risks ballooning the budget deficit.

The positive but cautious growth outlook is reflected in the EUR/USD pair, which has been stuck in a neutral range since late May. Traders are unlikely to push the pair out of this range without a change in the Eurozone’s growth picture over the medium-term. Friday’s data is not anticipated to deliver such a shift in the outlook, but the euro could nevertheless see some volatility if there are surprises to the PMI figures.

EUR/USD 20/09/2018 | EconAlerts

EUR/USD could slip towards the recent 1.1620 support zone if the PMI numbers miss expectations. If the pair is unable to hold above this barrier, the decline could accelerate towards the 1.1570 level – another previous support region. Below this point, the 1.1530 level would come into scope.

Should there be a positive surprise, however, EUR/USD could look to make a sustained break above immediate resistance at the psychological 1.17 level. The pair has failed to close above this handle since late August despite several attempts during September. Above 1.17, the next hurdle should come in the 1.1745 area. Further up, the 1.1790 top from July should be watched as the next major resistance.




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This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Source: XM

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