Where we are: EUR/USD is currently trading around 1.1600, near its weakest level since early April. The pair traded in a tight overnight range, failing to hold onto earlier gains after disappointing Eurozone PMI data. It is currently below yesterday’s New York close, suggesting continued selling pressure.
What’s driving it: The primary driver is the weaker-than-expected Eurozone PMI data, raising concerns about the pace of economic recovery and potentially influencing the ECB’s policy path. French and German Flash PMI figures all came in below forecasts this morning. While the ECB cut rates by 25bp in April to 2.50%, keeping a mild easing bias, a sustained economic slowdown could embolden doves to push for further easing. A slightly negative 2s10s spread suggests concerns over future growth, amplified by EU cutting growth forecasts to 0.9% this year.
- The French Flash Services PMI printed at 46.6 vs 46.5 expected.
- The Eurozone economy unexpectedly contracted in May at the fastest pace since late 2023.
- Speculator positioning in the Euro is modestly long at +40,200 contracts, offering limited fuel for a major squeeze.
NY session focus: The focus shifts to the US data releases this morning, with the 08:30 ET Philly Fed Manufacturing Index and Unemployment Claims providing further cues on the relative strength of the US economy. Then later we get Flash Manufacturing PMI (Forecast: 53.8 | Previous: 54.0) and Flash Services PMI at 09:45 ET. A strong print in the US could push EUR/USD lower towards the 1.1550 level, while weaker data could offer a temporary reprieve. The key trade is fading rallies above 1.1620. The risk trade is an upside surprise in the US PMIs, triggering a sharp dollar rally and a test of the April lows in EUR/USD. The pain trade would be an unexpected hawkish signal from the ECB, catching the market leaning the wrong way.