EU Eco Data Back to Boom -EURUSD 1.20 by Year End?

Market Drivers July 24, 2020

  • EUR PMU recover to boom
  • UK PMI neat also
  • Nikkei -0.58% Dax -1.72%
  • UST 10Y 0.59
  • Oil $41
  • Gold $194/oz
  • BTCUSD $9541

Asia and the EU

  • EU PMI 54.8 vs. 51.1
  • UK PMI Services 56.6 vs. 51.1

North America 

  • USD New Home Sales 8:30

Risk-off sentiment dominated Asian and early European trade but equities were off their worst levels of the session after PMI data from the region surprised to the upside showing that business conditions returned above the 50 boom/bust level.

In Europe, the composite PMI printed at 54.8 versus 51.1 indicating that the region is starting to recover from the coronavirus lockdowns.

According to Markit, “Business activity across the eurozone rose for the first time since February, according to provisional PMI® survey data, growing at the sharpest rate for just over two years as economies continued to reopen after lockdowns implemented to prevent the spread of the coronavirus disease 2019 (COVID19). Output expectations improved, while new order inflows also picked up and job losses eased, albeit with job cutting remaining widespread as many firms continued to scale back capacity.

Although the drop in outstanding business was smaller than witnessed in prior months, a resulting surfeit of capacity relative to order books prompted many companies to continue to reduce staffing numbers. Headcounts consequently fell for a fifth straight month. While the rate of job cutting eased compared to the prior four months, it nevertheless remained faster than at any time since the start of 2013.

Looking ahead, expectations of future output continued to improve from the low plumbed in March, rising to five-month highs in both manufacturing and services, the latter reporting relatively greater prospects. Hopes of improved performance over the coming year often reflected expectations of a further opening up of economies, though companies also often warned that any gains were from historically low bases, due to business volumes having been hit hard by the pandemic.”

The new should bode well for the euro which broke through the 1.1600 barriers in overnight trade and remained firmly bid. The recovery in economic activity along with agreement on the EU stimulus package should serve as a good catalyst for growth into the year end and it is not inconceivable to imagine that EU growth could exceed US growth for the first time in years. All of which should continue to compress the interest rate differentials between US and EU yields and provide a tailwind to the EURUSD rally with longer-term bulls now eyeing the 1.2000 level as the year proceeds.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Boris Schlossberg

Mr. Schlossberg is a regular contributor to CNBC's Squawk Box and a commentator for CNBC Asia and CNBC Europe. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley

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