The Eurodollar rose against the greenback yesterday following the release of better than anticipated German final services PMI and a sharp rise in the Eurozone retail sales in August. Notably, the ISM non-manufacturing PMI data was also higher than economists’ estimates, but the greenback did not react positively as the US market as a whole is gripped by concerns over COVID-19 infected President Trump’s health.
According to IHS Markit, Spanish services PMI (purchasing managers’ index) decreased to 42.40 in September, from 47.70 in August, and missed economists’ expectations for a reading of 46.40. The reported reading reflected the fastest contraction since May.
The Spanish service sector was hit by a resurgence in COVID-19 infections and slowing demand in September. For the second month in a row, economic activities decreased as sales volumes fell at a faster rate. The declining backlog of work caused another round of job cuts as companies made efforts to control their expenses. However, confidence about the future improved from last month to reach a three-month high.
Similarly, Italian services contracted for the second month in a row, albeit an improvement in the headline index reading from last month. The services PMI improved to 48.80 in September, from 47.10 in the prior month, but better than the 46.70 reading anticipated by economists. A reading below 50 indicates contraction and vice-versa. Weak demand was the primary reason for the contraction inactivity. Once again, the level of new business declined slightly.
As global demand was weak, fresh export orders dropped at a somewhat faster rate. Consequently, firms resorted to another round of workforce reduction. However, the rate of job cuts slowed down to the lowest level in the seven months. Interestingly, the Future Activity Index recorded its highest level since March 2018, mirroring the strongest level of confidence with respect to output over the forthcoming 12 months.
In a separate news release, the IHS Markit stated that the German final services PMI decreased to 50.60 in September, from 52.50 in the earlier month. The preliminary (flash) reading was 49.10. Economists did not anticipate any change in the preliminary reading. The reading indicates a slight increase in economic activity, despite recording the slowest pace of growth in the past three months.
Optimism about economic activity also weakened mildly, though companies confidently increased their employee count against the backdrop of increasing fresh orders. The pricing power of companies remained weak due to cut-throat competition.
The IHS Markit reported that the final Eurozone services PMI reading decreased slightly to 48 in September, from 50.50 in the earlier month. Economists did not anticipate any change in the flash estimate of 47.60. Likewise, the final Eurozone composite output index decreased to three month low of 50.40 in September, from 51.90 in the prior month, but slightly higher than the flash estimates of 50.10.
Overall regional manufacturing output increased at the quickest rate in more than two-and-a-half years. On the contrary, service sector activity retreated into shrinking by recording its worst performance since May. Fresh business in the Eurozone rose marginally during September and at the slowest phase in three months.
Backlogs of work dropped for the 19th consecutive month, although slightly. Employment figures decreased for the seventh month in a row. Operating costs of companies rose for the fourth consecutive month in September, with a solid inflation rate.
Commenting on the Eurozone PMI data, Chief Business Economist at IHS Markit, Chris Williamson, said, “With the eurozone economy having almost stalled in September, the chances of a renewed downturn in the fourth quarter have clearly risen.”
The Eurozone Sentix investor confidence declined further to -8.30 points in September, from -8.0 in the prior month, but better than the reading of -9.20 anticipated by economists. Nevertheless, the current situation index improved to its highest level since March. Likewise, the expectations index, despite a decline of 2 points, remained near its peak. Overall, the outlook for Germany was slightly better than for the entire Eurozone.
According to Eurostat, retail sales volume increased 4.4% m-o-m in August, compared with a decline of 1.8% in July. The Consensus estimate was 2.4%. On a y-o-y basis, retail sales rose by 3.7% in the Eurozone in August, non-food products posted 6.1% m-o-m growth in retail trade volume. On a y-o-y basis, non-food products recorded a 5.9% expansion.
In the US, the Institute of Supply Management stated that non-manufacturing PMI (purchasing managers’ index) increased to 57.80 in September, from 56.90 in the earlier month, and surpassed economists estimate for a reading of 56.30. For the fourth successive month in a row, the services sector recorded growth.
Interestingly, in the past 128 months, the service sector posted growth in all months except April and May. Likewise, for the fourth successive month in a row, the composite index posted growth, following a decline in April and May. As per the data reported by ISM, 16 services industries posted growth.
However, the Supplier Deliveries Index reading was 54.90, down 5.60% from the August reading of 60.50. The Prices Index figure of 59 was 5.2% below the August reading of 64.20%, reflecting a slower phase of price increase in September.
The mixed data is expected to keep the EUR/USD pair range-bound with a slight bullish bias.
The historical price chart indicates that the EUR/USD pair has bounced off the support at 1.1695. The next resistance is anticipated only near 1.1875. Additionally, the currency pair is trading above the 50-day moving average, while the stochastics indicator is in the bullish zone. Therefore, we are anticipating the currency pair to rally further in the near-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
