EZ PMIs Preview: Expectations are digging the bottom, and EUR/USD may benefit

• Markit's preliminary PMIs are set to fall deeper into contraction territory.
• The ongoing impact of lockdowns and uncertainty about removing them are weighing on sentiment.
• EUR/USD may have already priced the downfall and traders may eye the EU Summit.

Any score below 50 represents contraction, below 40 already reflects a deep recession, and what do sub 30 scores represent? Markit's Purchasing Managers' Indexes have already fallen to multi-year or record lows due to the coronavirus crisis and are now projected to fall into deeper ground.

Back in March, manufacturing PMIs were only pointing to an ongoing downturn in the sector that had begun earlier. However, the data was skewed by a calculation quirk that counts delays to supplies as positive. That was a result of China's lockdowns and may have faded away. Surveys for the industrial sector are set to fall now.

Services sectors already reflected the falls as the shuttering of the economies forced shops, restaurants, flights and many other sectors to grind to a halt. The fall is not over as most European countries remain under various forms of lockdown. 

Figures for France are set to extend their falls. The eurozone's second-largest economy extended its restrictions through mid-May. Economists forecast German statistics to be marginally better. That may stem from the country's baby steps to exit the lockdowns. Uncertainty remains high in the continent's largest economy.

Preliminary data for the whole of the eurozone carries the worst expectations. It is essential to note that March's PMIs in Spain and Italy were even worse those for Germany and France. 

EUR/USD response

The common currency has already had its share of bad news and it seems that economists are getting used to horrible data. The German ZEW Economic Sentiment beat all projections and turned positive in April. While the Current Conditions component extended its free-fall, the fact that one figure exceeded estimates shows that pessimism may have run its course. 

In the scenario that over-pessimism is the case this time as well, EUR/USD has room to rise if the data beats expectations. 

Downbeat estimates do not prevent actual statistics to fall even lower as Italy's sub-20 figures have proved. In that case, EUR/USD may edge lower. Nevertheless, while the common currency could dip, investors are eyeing another event that day. 

Leaders of the EU Will hold a video conference to try thrash out a response to COVID-19 – including a broader economic one That may keep EUR/USD from making big moves ahead of the event. Background talks produce a deal ahead of the conference, but that is highly unlikely given the differences. See the preview.

Conclusion

Markit's forward-looking PMIs provide an updated view of the coronavirus-stricken economies. The figures are expected to be extremely low, but is likely priced in and EUR/USD has room to rise or shrug off bad news.