- June's euro-zone PMIs are set to remain at similar levels to those seen in May.
- The euro has already dropped on the ECB's downside shift and may have little room to fall.
- FXStreet's surprise index points to a beat in both euro-zone and German figures.
Pessimism may have reached its limits – or already fully priced into the euro. Markit's preliminary purchasing managers' indices for June will shed some light on the current state of currency bloc's economies and also provide insights into future growth.
Euro-zone growth picked up in the first quarter but there have been various worrying signs about current growth coming from these forward-looking figures. Germany's manufacturing sector is contracting for several months – the index stood at 44.3 points in May – well below the 50-point threshold separating expansion from contraction.
The continent's locomotive is derailing – but the rest of the continent is not doing much better. France's services and manufacturing sectors are suffering from sluggish growth with scores of 51.5 and 50.7 respectively. Looking at the euro-zone as a whole, the composite index stands at 51.8 – and it is expected to remain unchanged.
Here are the figures as they appear on the economic calendar:
There are three reasons to believe that expectations are too low or at least that the euro will react positively to further mediocre data.
The case for an upside surprise
1) Minimal changes expected: Economists mostly project a repeat of the same figures – which are already low. While the numbers may always extend their falls, even a deteriorating economy usually enjoys corrections on the way down.
2) ECB has already pledged to ease: ECB President Mario Draghi has said that if the outlook does not improve, the central bank is ready to do more – cut interest rates and perhaps resume the bond-buying scheme. Another negative outcome will not change the ECB's mind.
3) FXStreet Surprise Index points higher
The FXStreet Surprise Index has shown that the recent economic data from Germany and Europea hs already bottomed out early in the year and the frequency and strength of upside surprises have strengthened.
Let us start with Germany. Using data from January 2018 onwards, we see that the magnitude of disappointments has been diminishing. We can identify an uptrend and a surge in positive surprises – or at least fewer negative ones – in the past few weeks.
Moving on to the euro-zone we see a similar, yet not identical trend. The indicator fell to lower ground in the fourth quarter of 2018 and then recovered only to fall once again.
And also here, the recovery is impressive and has improved in recent weeks. The Surprise Index is at the highest levels since September 2019 – a nine-month high.
All in all, there are greater chances for Markit's PMIs to beat expectations or at least for a positive EUR/USD reaction to the data as expectations may be too low, the ECB's easing intentions are already known, and the FXStreet Surprise Index has been showing a substnatial improvement.
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