Better PMI Changes EUR/USD Sentiment

Last updated 4/23/2009 5:34 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• EZ PMI data better than forecast
• BoE Blanchflower - tenative signs of recovery
• Equities up in Asia, flat in Europe
• OIlnearing $49/bbl
• Gold at $894/oz -$900 ahead

Overnight Eco

• AUD New Motor Vehicle Sales -3.2% vs. -4.0% last
• NZD Credit Card Spending -5.0%
• CHF Trade Balance 40 vs 30
• EUR German Flash Manufacturing PMI 35 vs. 33.2
• EUR German Flash Services PMI 43.6 vs. 42.6
• EUR Current Account -8.1B vs -10.6B
• EUR Flash Manufacturing PMI 36.7 vs. 34.7
• EUR Flash Services PMI 43.1 vs 42.1

Event Risk on Tap

• CAD Retail Sales expected at -0.2%
• USD Unemployment Claims expected at 630K
• USD Existing Home Sales expected at 4.66M

Price Action

• USD/JPY climbs to 98.50 on better risk appetite
• AUD/USD trades to 7100 as high betas lifted in over all better environment
• GBP/USD remains above 1.4500 but yesterday's tax news weighs
• EUR/USD better PMI helps to lift the unit above 1.3000

The euro received a lift from better than expected PMI Manufacturing and Services surveys both of which printed materially stronger than forecast. The Manufacturing PMI rose to 36.7 from 34.7 eyed while the Services survey jumped to 43.1 from 42.1 projected. As we noted earlier, “Today’ s upward surprise should take some pressure off the ECB in the near term. European monetary authorities have come under enormous amount of criticism for keeping credit conditions too tight at a time when the rest of the G4 has implemented a near Zero Interest Rate Policy. The uptick in the PMI data suggests that the EZ economy is responding to a pick-up in global demand despite relative lack of fiscal and monetary stimulus.”

The EUR/USD which has been sold relentlessly over the past week on the assumption that economic activity in the region would only contract further, rose steadily in the aftermath of the release. Today’s news is the first concrete piece of fundamental evidence that the recession in EZ may have bottomed out in Q1 of 2009, although tonight’ s readings remain well below the 50 boom/bust level that would signal a true recovery. Nevertheless, the news certainly served as a turning point for the currency which rose firmly above the 1.3000 level reaching a high of 1.3060 in early European trade.

Whether this is a true turn in the EUR/USD remains to be seen. We continue to be skeptical of the bounce believing that deterioration in the labor markets will wreak havoc with the region’s economy later in the year. For the time being however, momentum has shifted to euro bulls and if tomorrow’s IFP report proves similarly positive the pair could challenge the 1.3100 figure and beyond before the week’s end.

Are Germany's Stimulus Packages Working?

Meanwhile the North American calendar remains quiet with only Existing Home Sales on the docket. If the number beast consensus it could stoke risk appetite as the day progresses helping euro along Today’s better that expected PMI reading from Europe corroborates the bullish argument that the global economic recession may have peaked. EZ was viewed as a laggard in G10 by virtually all market analysts and today’s positive results indicate that for the time the worst may be over.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.