The Eurozone PMIs released a few hours ago beat expectations. Both services and manufacturing data showed improved conditions, and the EURUSD celebrated by jumping over 1.22.
The funny thing so far is that only the EURUSD reacted, with the Euro crosses not participating. As such, one may conclude that the move higher in the EURUSD exchange rate right after the PMI release is not related to the PMIs, but is just another leg lower in the USD pairs. Indeed, the AUDUSD moved higher as well, just like the GBPUSD did – and they have nothing to do with the Eurozone PMIs.
What the PMIs Tell Us?
Europe is tested for the second time during the pandemic. The second wave of infections generated a record number of deaths in Germany, and the trend keeps rising. As such, Germany and other European countries, enter a hard lockdown with restrictions designed to hold until after the holidays.
Despite a tough winter in terms of economic output and performance, the PMIs were surprised to the upside. Remember that these are diffusion indexes that refer to the activity in relation to the previous month. In any case, the performance should not be ignored. In the case of the manufacturing PMI, for example, the data came out at 31-month highs. Services surprised to the upside as well, albeit remaining in the contracting territory. The data for the sector came at 47.3, below the 50 level, but well above the previous 41.7.
In other words, Europe enters the holiday season, and the harsh lockdowns are in better shape than expected. I mean, everyone priced in a terrible environment, and today’s data makes it a bit easier to swallow the period ahead.
However, in the financial world, the PMIs are just a drop in the water. That is especially true in a situation when the Fed is due in a few hours from now and the world is paralysed by a pandemic.
As such, today’s reaction on the EURUSD pair may have nothing to do with the PMIs, but with the USD. Keep in mind that after today’s event, most trading centers around the world will enter a holiday mode, with liquidity draining slowly but surely.
Expect the next couple of days until the end of the trading week to be crucial for the currency market and the U.S. dollar. After that, the stock market will take the driving seat.