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Upward Suprise in PMI Provides New Support for the Euro

EZ PMI Services survey registered it best reading in six months printing at 43.1 versus forecasts of 41.2 while the Manufacturing gauge also improved to 36.7 from 33.9 the month prior. The better than expected results of the survey suggest that the contraction in EZ economy may be bottoming out having reached its nadir in Q1 of 2009.
Most encouraging to euro bulls was the rise in the Manufacturing survey which suggests that some small uptick in global demand may be helping the region’s critical export sector. Despite the good news both surveys remain well below the 50 boom/bust level and the employment component of the Manufacturing PMI portends further weakness in the labor sector.
Nevertheless, today’ s upward surprise should take some pressure off the ECB in the near term. European monetary authorities have come under enormous amount of criticism for keeping credit conditions too tight at a time when the rest of the G4 has implemented a near Zero Interest Rate Policy. The uptick in the PMI data suggests that the EZ economy is responding to a pick-up in global demand despite relative lack of fiscal and monetary stimulus.
After having retreated towards the 1.3000 figure, the EUR/USD climbed steadily in post news reaction as traders adjusted their expectations. The single currency has been subject to massive negative sentiment over the past week, as markets decided that economic activity in the 16 member union would only decelerate further. Today’s data is the first concrete piece of evidence to challenge that view indicating that conditions on the ground may be improving. As such the better than forecast PMI reports should provide the EUR/USD with some new found support going forward.