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Will February Eurozone PMIs Drive Euro Lower?

Feb 20 2020, 08:54 PM (BDT) |

The last day of the trading week is going to be quite busy for euro traders.

We have the release of Flash PMIs for the major economies in Europe, inflation statistics, and a couple of potentially policy-revealing speeches by ECB Board members. And all of that will be coming out as the day progresses.

Let’s drill down on the PMI data since it’s likely to have the most impact on the market.

Earlier in the week, we had quite disappointing results from the ZEW Economic Sentiment Indicator. It showed that the largest economy in the eurozone was starting to backtrack on optimism.

That’s why markets are likely to be paying extra attention to Germany’s PMIs. Investors will be looking to see if executives are holding off on purchases due to institutional pessimism.

If major businesses aren’t willing to invest, it’s going to be hard for the economy to speed up any time soon.

What We Are Looking For

The barrage of major data starts just after the bourses open in Europe, when Markit publishes the survey of French Purchasing Managers. France is in something of the opposite position than Germany.

Domestic optimism is under pressure due to the strikes over pensions. Even so, the consensus is that French sentiment has, overall, improved just slightly.

Expectations are for French Manufacturing PMI to improve to 51.9 from 51.1 prior. While that’s in growth, it’s not showing much enthusiasm.

Projections are for services PMI to get a little worse at 50.8 compared to 51.0 prior. We can expect the composite PMI of both to show not much change at 51.3 compared to 51.1 prior.

The Star of the Show

Where we are likely to get movement in the euro pairs is with the release of German data. This will especially be the case if it doesn’t match expectations.

The consensus is for a slight improvement over the last month, though with the industrial sector still in contraction. If PMIs manage to improve despite the expected supply issues related to the COVID-19 outbreak, the markets would likely see it as quite positive. As such, it could help support the euro.

Expectations are for German Manufacturing PMI to improve to 46.2 from 45.3 prior. The domestic market continues to remain relatively strong, with Services PMI moving up to 54.6 compared to 54.2 prior.

We can the composite PMI to basically stay the same at 51.0 compared to 51.2 prior.

Bringing It All Together

Half an hour later we get the data from the entire eurozone. This often doesn’t move the market much, because it almost always mirrors the data from the bigger countries. We can see the impact of Germany on the data.

Projections indicate that eurozone Manufacturing PMI will come in at 49.1. This would be an improvement over the 47.9 prior.

A result like this would bring it into the range of being considered “technically” in contraction.

Expectations are for services PMI to basically stay flat at 52.4 compared to 52.5 prior.

In summary, we can also expect the Composite PMI to not change significantly at 51.4, compared to 51.3 in the prior reading.

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