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Upward Suprise in PMI Provides New Support for the Euro

Last updated 4/23/2009 4:32 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

EZ PMI Services survey registered it best reading in six months printing at 43.1 versus forecasts of 41.2 while the Manufacturing gauge also improved to 36.7 from 33.9 the month prior. The  better than expected results of the survey suggest that the contraction in EZ economy may be bottoming out having reached its nadir in Q1 of 2009.

Most encouraging to euro bulls was the rise in the Manufacturing survey which suggests that some small uptick in global demand may be helping the region’s critical export sector.  Despite the good news both surveys remain well below the 50 boom/bust level and the employment component of the Manufacturing PMI portends further weakness in the labor sector.

Nevertheless, 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.

After having retreated towards the 1.3000 figure, the EUR/USD climbed steadily in post news reaction as traders adjusted their expectations. The single currency has been subject to massive negative sentiment over the past week, as markets decided that economic activity in the 16 member union would only decelerate further. Today’s data is the first concrete piece of evidence to challenge that view indicating that conditions on the ground may be improving. As such the better than forecast PMI reports should provide the EUR/USD with some new found support going forward.    

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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.