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Eurozone PMI’s Disappoints, UK Retail Sales beats estimates!

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After an upbeat GDP data last week, the markets were expecting to see a better growth in the services and manufacturing flash PMI’s from the Eurozone. But latest data released showed that flash PMI decreased across the board, falling to a 16 month low in the region which once again could see a lower outcome in the Eurozone’s GDP expectations next month.

French flash manufacturing PMI disappointed, falling 47.6 against expectations of 48.9, while services PMI managed to rise slightly to 48.8. From Germany, manufacturing PMI declined to 50 against expectations of 51.5 while services PMI declined 52.1 against estimates of 54.5. Last month’s PMI’s were revised downward to 51.4 and 54.4 respectively. On the whole, Eurozone flash manufacturing PMI fell to 50.4 against expectations of a rise to 50.9 and services PMI declined to 51.3 against expectations of a an unchanged reading at 52.3. The downbeat PMI’s could potentially dip the Eurozone’s GDP readings into contraction which could shift focus back to the ECB and the prospects of QE. However, considering that the PMI’s released today are only flash estimates, the chances of an improvement could possibly change the tone when the complete readings are released next month.

The EURUSD which was resilient yesterday after the FOMC meeting minutes saw steep declines and is currently seen to be trading near the 1.25 handle, a critical level which could steer the pair in either direction.

The UK’s retail sales data was also released later beat estimates rising 0.8% on a month on month basis, above consensus which called for a rise of 0.3%. The previous month’s retail sales however was revised downward to -0.4% from -0.3% previously. On a yearly basis, retail sales increased 4.3%, above 3.8% estimates but again, the previous month’s reading was revised downwards to 2.3% from 2.7% previously. Retail sales excluding auto fuel rose 0.8%, above 0.3% estimates while on a yearly basis, retail sales rose 4.6% above 4.2% estimates.

The British Sterling reacted strongly on the upbeat data, continuing its gains from yesterday, after the FOMC meeting minutes.

However, key risks to both the EURUSD and the GBPUSD come in the form of the US CPI m/m data due to be released during the US trading session. It is widely expected that inflation in the country will be soft, rising 0.2% on the core and decline -0.1% on the headline reading. It must be noted that the Fed did highlight its concerns about falling inflation in the near term, fuelled by falling crude oil prices. In fact, the University of Michigan inflation expectations on 5 and 1 year fell to 2.6% which was partly responsible for the selloff in the US Dollar last Friday. A weaker than expected inflation reading from the US today could potentially help push the Pound and the Euro into continuing to keep their bullish momentum alive. Besides the inflation, existing home sales data and PMI manufacturing data are also on the tap today which will be critical to the short term direction in EURUSD and the Cable.

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