News and Analysis

EUR/USD Slips After PMI Miss

EUR/USD traded sharply lower in early trading on Friday, after eurozone PMI surveys came in weaker than expected. The eurozone economy expanded at the fastest pace since mid-2018 in July, as Covid-19 restrictions were eased. However, the latest PMI figures showed that the region’s economic recovery had weakened, dampening expectations of a V-shaped recovery and weighing on the common currency.

Markit Economics reported that the flash eurozone composite purchasing managers index fell to a two-month low of 51.6 in August from 54.9 in July. While the figure remained above the 50 level, it widely missed analyst expectations of 54.9. Andrew Harker, economics director at IHS Markit stated: “Companies remain cautious when making decisions on employment, again opting to lower staffing levels in August amid a lack of confidence in the strength of the recovery.”

On Thursday, the minutes from the ECB July meeting were released, showing that policymakers debated their ability to conduct emergency bond purchases to boost the eurozone economy. The minutes suggested that some policy makers may be reluctant to  increase the ECB’s 1.35 trillion euro pandemic emergency purchase program (PEPP). The word “uncertainty” appeared some 20 times in the minutes.

Looking at the EUR/USD daily chart, we can see that price has retraced from the recent high of 1.1965. Potential support lies below at the 1.1708 level.