The latest set of PMI data out of the UK and Europe painted a picture of doom and gloom this week. Amid the first set of data to properly account for the corona virus outbreak, the market was expecting weakness. However, there are some positives to take from this week’s releases. Broadly speaking, the data was not as bad as expected.
Eurozone Data Causes Concern
In the Eurozone, the overall manufacturing PMI for the bloc came in at 44.8. Although this was down from the prior month’s 49.2, and still below the neutral 50 level, it was not as bad as the 40.1 reading the market was looking for.
French manufacturing was also a little better than expected. Though again still in contractionary territory, at 42.9 vs 39.4 expected and 49.8 prior. German manufacturing was also a little better than expected, printing 45.7 vs 40.1 expected and 48 prior. German services PMI, however, was a major red flag. Data came in at a worrying 34.5 vs 43 expected and 52.5 prior. This is a drop of nearly 20 points on the index.
Indeed, the overall Eurozone services PMI was shockingly low. Data came in at 28.4 vs 40 expected and 52.6 prior. Marking a near 20 point drop, this reading is a fresh record low for the service sector. It is highly concerning insight into the impact the coronavirus outbreak is having on the Eurozone economy.
UK Manufacturing Back in Contractionary Territory
In the UK, readings were again weak. As with the Eurozone, however, manufacturing was a little better than expected. Data came in at 48 vs 45.1 expected, though down from 51.7 prior and back in contractionary territory. However, the services PMI was also troublingly weak. The reading came in at 35.7 vs 45 expected and 53 prior.
US Data Remains Weak
This theme also played out in US data. The US manufacturing data (which was the strongest among the three) printed 49.2 over the month vs 45.2 expected. This is still down from 50.7 prior and in contractionary territory. Again, the service sector was the worst hit. Services PMI printed just 39.1 vs 44.1 expected and 49.4 prior.
Fears For Service Sector
With many office-based companies in the US, UK and Europe on lockdown now, the service sector has come under increasing pressure and looks likely to remain so in the near term. Traders will now be equally waiting for the next reading. So, whether this trend develops further or whether we start to see some recovery. Much of this will depend on how long the current lockdowns last.
In the US, Trump has said that in 15 days’ time he will review the lockdown and promises that the US will be “open for business” again. In the UK, the PM has advised that the situation will be reviewed in 3 weeks. Finally, in Europe, countries such as Spain have extended the current lockdown into mid-April.
Bullish Divergence Appearing in EURUSD
Looking at EURUSD on the weekly timeframe you can see that price has been moving in a well defined bearish channel from the 2018 highs. The recent recovery was capped once again at a test of the 1.1487 level. However, you will notice that the RSI indicator is starting to flag bullish divergence as we approach the key 1.0463 level support. Provided this level isn’t broken, this suggests a potential for a reversal higher in the medium-term.