Private Sector PMIs to Drive the EUR and a Defensive USD

Following a relatively quiet week on the economic calendar, it’s a busier day with the market having some numbers to get its teeth into, macroeconomic data scheduled for release through the day including June prelim manufacturing and service PMI figures out of France, Germany, the Eurozone and the U.S.

The numbers out of France were mixed this morning, with the manufacturing sector seeing a pickup in activity, while service sector activity slowed, reversing the direction in May, though the key figures for the Eurozone will be Germany’s manufacturing PMI, continued momentum in the German economy remaining pivotal in the Eurozone’s economic recovery.

Despite the mixed numbers out of France, the EUR took a bounce upon release of the numbers, though the gains against the Dollar likely had as much to do with easing appetite for the Dollar than market euphoria over the numbers.

This week’s ECB economic bulletin painted an optimistic picture of the 2^nd quarter, so the Germany’s manufacturing PMI is going to need to be a positive for the markets to continue to buy into the positive outlook, speculation of a possible slowdown in the U.S economy leaving the markets somewhat sensitive to weak economic indicators.

While the EUR, for now, has managed to recover Thursday’s losses, up 0.18% at $1.11725 at the time of the report, the FED-effect seems to have worn off, with the Dollar Spot Index down 0.23% at 97.365 at the time of the report. U.S Treasury yields have been on the slide, with a combination of factors weighing on yields, including the prospects of a failed Healthcare Bill, noise of Republican Party member resistance to the new and improved weighing, with Thursday’s weaker initial jobless claims contributing, while the week’s slide in oil prices and negative outlook will be the Dollar’s biggest bugbear. The FED Chair’s suggestion of one-offs contributing to softer inflation numbers was likely to have been in reference to falling oil prices and as things stand, it’s not going to get much better without some material changes to the current agreement between OPEC and Russia, with deeper cuts a must for the markets to shake off the melancholy.

As the outlook for inflation begins to weigh on the prospects of a 3^rd quarter rate hike and the Dollar, there may be some hope for the Dollar bulls today, with manufacturing and service sector PMI figures scheduled for release out of the U.S

Economic indicators have been mixed through the 2^nd quarter, raising doubts over whether the much talked about 2^nd quarter economic rebound will in fact materialise. Today’s numbers and service sector figures in particular, will need to show an increase in activity, with the markets also likely to dig into the details, output price pressures and new orders needing to also be on the up for a sustained bounce in the Dollar.

With noise from the ongoing investigations into the U.S administration abating, the decibels are rising once more from the Oval Office and while neither have been great for the Dollar, the markets may once more be reminded of the inability of the U.S President in being able to seamlessly pass Bills through the Republican majority Congress, the Republican Party yet to be fully united, with Trump’s support having deteriorated further following the start of the current investigations.

There are no material stats out of the UK to provide direction for the pound, though with Brexit negotiations now underway, soft-Brexit v hard-Brexit and tone from Brussels will be enough to move the pound, up 0.38% at $1.27305 at the time of the report, an apparent agreement on the post-Brexit status of EU and British Citizens in the UK and EU pointing towards a softer-Brexit, which will remain the most favourable outcome for the pound, as things stand.

We can expect the Dollar to remain under pressure through the day, with any further declines dependent upon today’s stats, while private sector PMI figures are likely to be good enough for the EUR to hold on to gains through the early part of the day, a soft-Brexit sentiment not only a positive for the pound, but also the EUR.