HomeContributorsFundamental AnalysisEurozone PMIs Forecast to Ease But Still Point to Solid Growth

Eurozone PMIs Forecast to Ease But Still Point to Solid Growth

Markit’s eurozone flash PMI data for the month of February for the manufacturing and services sectors are due on Wednesday at 0900 GMT. The figures are expected to slightly ease relative to January, though still remain comfortably in expansion territory above 50 and continue to support the view that growth in the euro area is picking up steam.

February’s flash manufacturing, services and composite PMIs are anticipated at 59.3, 57.6 and 58.5 respectively. These compare to January’s respective figures of 59.6, 58.0 and 58.8. The composite PMI is the measure that blends the two sectors – manufacturing and services – together.

January’s composite PMI stood at its highest in more than a decade, outstripping all analyst estimates and pointing to eurozone Q1 2018 quarterly GDP growth of 1.0% according to IHS Markit, this being the fastest pace of quarterly expansion since before the global financial crisis. The rise in the measure was driven by increasing activity in the services industry, the euro area’s dominant sector. However, the manufacturing industry’s performance fell short of forecasts in January, with the rising euro and the pick up in oil prices possibly weighing on the sector. It should be mentioned though, that the manufacturing PMI’s three-month average which is less susceptible to Christmas period volatility as a result of factory closures, stood at its highest on record in January.

Overall, despite the expected slowdown, February’s figures are projected to show a continuation of positive momentum in the eurozone economies, with stronger-than-anticipated figures even having the capacity to spur investors to push closer in time their expectations for further policy tightening by the European Central Bank. In this respect, a data beat is likely to be met with long euro/dollar positions, with the range around the 1.24 handle, an area of congestion recently as well as 1.24 being a level of potential psychological significance, possibly providing resistance. An upside break would start to increasingly shift the focus to last week’s three-year high of 1.2555.

A data miss on the other hand, could see the pair posting losses. Euro/dollar could at the moment be finding support around the 23.6% Fibonacci retracement level of the November 7 to February 16 upleg. It seems that investors are repositioning ahead of other risk events as the week unfolds – for example the release of the official record of Janet Yellen’s last meeting as Fed chief on Wednesday. A violation of this range – something which could occur even before the release of PMI numbers – would turn the attention to the area around the 38.2% Fibonacci mark at 1.2173 as additional support, with the current level of the 50-day moving average (1.2154) being part of this range.

On the ECB front, it is of interest that Spanish Economy Minister Luis de Guindos’ nomination to succeed Vitor Constancio as the Bank’s Vice President has led some to expect somebody from central Europe (Luis de Guindos being a southern European) to succeed Mario Draghi when his term expires in 2019. One of the names at play is Bundesbank chief Jens Weidmann, an individual that could tilt the central bank towards a more hawkish direction.

Finally, Germany, the largest, and France, and second-largest eurozone economy, will see the release of their respective PMI figures earlier on Wednesday; France at 0800 GMT and Germany at 0830 GMT. Other data to watch out of the eurozone pertain to the bloc’s final inflation readings for the month of January due on Friday at 1000 GMT.

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