The euro gained ground against the greenback yesterday following the release of May’s lower-than-anticipated US ISM PMI data. The Eurozone manufacturing PMI data was almost in line with estimates. This enabled the euro to gain momentum against the US dollar. Overall, the EUR/USD pair rallied from a low of 1.0827 to a high of 1.0880 in the past 24 hours.
The Hamburg Commercial Bank (HCOB) and S&P Global German final manufacturing purchase managers’ index (PMI) rose for the second month to hit a four-month high of 45.40 in May from 42.50 in April. The flash estimates had pegged the reading at 45.40. Economists had not foreseen any alteration in the initial estimates. The reported reading was the second-highest in the last 15 months.
Fresh orders recorded a slower decrease in April and the weakest overall for two years. Output declined at only a modest rate, which was the softest recorded since the current sequence of decline began in May 2023.
During May, the backlog of work continued to decline significantly, although the rate of depletion slowed to its weakest point in 20 months. Business expectations improved for the third consecutive month, hitting their highest level since February 2022. This optimism was led by the anticipation of lower interest rates, which are expected to boost investment and overall economic activity. Additionally, the assessment for May signaled steep and accelerated reductions in inventories of both finished goods and inputs.
Overall, the HCOB German manufacturing PMI output index grew to a 13-month high of 48.90 in May from 45.40 in April.
The HCOB and S&P Global Eurozone final manufacturing PMI surged to a 14-month high of 47.30 in May from 45.70 in April, but below the flash estimates of 47.40. Economists did not anticipate any change in the flash estimates. The reported reading is the highest since March 2023.
Order backlogs continued to decline in May due to a sluggish demand scenario. Purchasing activity started falling midway through the second quarter, even though the rate of decrease was the softest since September 2022.
Looking ahead, Eurozone goods producers expressed a high level of optimism regarding production prospects for the next 12 months.
Overall, the HCOB Eurozone manufacturing PMI output index jumped to a 14-month high of 49.30 in May from 47.30 in April.
The S&P Global US manufacturing PMI increased to 51.30 in May from 50 in April, higher than initial estimates of 50.90. The market did not anticipate any change in the preliminary estimates.
Fresh orders slightly increased in May after a modest decline in April.
The increase in fresh orders, combined with improved material availability, prompted manufacturers to increase production at a robust pace in May, with the growth rate accelerating compared to April.
Companies were confident that production would rise in the upcoming year, led by optimism that the renewed growth in fresh orders would continue in the months ahead. Employment rose for the fifth successive month, with the rate of growth being the fastest since July 2023.
According to the data published by the US Institute for Supply Management (ISM), the country’s manufacturing PMI inched down to 48.70 in May from 49.20 in the previous month, missing forecasts of 49.80. The US economy maintained its expansion for the 49th consecutive month following a contraction in April 2020. A manufacturing PMI® above 42.5 percent over an extended period typically signals economic growth.
The new orders index fell to 45.40 in May from 49.10 in April. Similarly, the production index decreased to 50.20 in May from 51.30 in the previous month. Also, the backlog of orders index inched down to 42.40 in May from 45.40 in April. The fresh export orders index rose to 50.60 in May from 48.70 in April.
The weak US economic data is expected to keep the EUR/USD pair slightly bullish in the near term.
The historical price chart indicates that the EUR/USD pair is rising after testing the support at 1.0790. The next resistance is anticipated to be only near 1.0980. Additionally, the currency pair is trading above its 50-day moving average, while the stochastic indicator is rising towards the bullish zone. Therefore, we anticipate the EUR/USD pair to remain in an uptrend for the next few trading sessions.
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.
