- EU Markit PMIs for June are seen recovering further, still in contraction territory.
- Dismal growth-related data priced-in long ago amid the coronavirus crisis.
- EUR/USD with little room for a steeper slide, bullish above 1.1270.
This Tuesday, Markit will publish the preliminary estimates of the EU manufacturing output and services activity for June. After collapsing to record lows in April amid the lockdowns related to the coronavirus pandemic, the indexes have been slowly grinding higher, although holding within contraction levels and far below from pre-pandemic numbers.
Slowly coming out of the woods
Economic reopenings are the main theme in Europe, as the worst seems over. New outbreaks so far have been contained, and, in general, the Old Continent is moving towards “normal,” with the focus then on when the economies will revert the slowdowns. The PMIs will then confirm or deny the latest market’s optimism about economic recoveries in the Union.
The services sector is the one expected to have improved the most. For the EU, the index is seen improving from 30.5 to 40.5 Manufacturing output is foreseen at 44 after printing at 39.4 in May. The Composite PMI is foreseen at 41 from 31.9 previously. A similar improvement is seen in Germany and France, the two largest economies from the region.
Dismal growth priced in
Growth in the first quarter has plummeted and it is no surprise that the situation is still tough. Contraction, although in-line with the market’s expectations, should be read as good news for the EUR. Worse than anticipated numbers, closer to previous than to forecasts while fuel fears of a slow and painful path ahead towards the economic comeback, hence, hurt the shared currency.
However, the market has long ago priced in economic contractions in all major economies, and the outcome of the Markit reports needs to be extremely discouraging to have a sustainable bearish effect on the EUR.
EUR/USD levels to watch
So far, the pair has given back the 38.2% of its latest daily run, meeting buyers around the 1.1170 Fibonacci support level. While it lacks bullish strength, bears are nowhere to be found.
The positive momentum would return on a break above 1.1270, the 23.6% retracement of the mentioned rally, with scope then to retest the monthly high at 1.1422 in the following sessions.
A clear break below the 1.1170 price zone, on the other hand, should open the door for a slide towards 1.1030, the 61.8% retracement of the same advance.
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