Forex Trading Guide: Euro Zone PMI Reports

While most financial markets are still closed for the holidays today, let’s get a head start on figuring out how to trade the economic releases this week. In this edition of my Forex Trading Guide, we’ll take a look at the euzo zone PMI figures due on Wednesday.

What the heck is a PMI?

PMI, which stands for purchasing managers’ index, is basically an indicator of business conditions in an economy. It takes into account the various factors affecting the industry, such as the level of employment, production, new orders, inventories, and deliveries then rolls it up into one neat figure. That makes it easier for traders like you and me to gauge whether businesses are doing well or not.

A PMI reading that is higher than 50.0 means that the industry is expanding. In other words, business is good yo! On the other hand, a PMI reading below 50.0 implies that the industry is contracting.

What is expected for the upcoming release?

After printing weaker than expected PMI readings for March, Germany is expected to show a rebound in its manufacturing and services sectors. Euro zone’s largest economy could show an improvement from 53.7 to 53.9 in its manufacturing PMI and a climb from 53.0 to 53.5 in its services PMI. Meanwhile, France is expected to follow up its strong March figures with subdued gains. The April manufacturing PMI is expected to tick up from 51.8 to 51.9 while the services PMI could hold steady at 51.5.

How could the euro react?

Well, the euro has been surprisingly strong these days despite seeing bleak euro zone economic figures and hearing of potential easing from the ECB. These PMI figures could change all that though if the actual results come in way worse than expected. On the other hand, stronger industry expansion across both manufacturing and services sectors in Germany and France could reduce easing expectations, which might then give the euro a strong boost.