By Lukman Otunuga
Grab your popcorn and find a cosy seat ahead of the latest Purchasing Manager Index (PMI) data from Europe, United Kingdom and the US which could spark volatility in the FX space.
The PMI is a leading indicator of economic health which essentially surveys purchasing managers at businesses that make up a given sector. Digging deeper, the headline PMI is a number from 0 to 100. Anything above 50 represents an expansion when compared with the previous month while under 50 represents a contraction.
It is worth keeping in mind that the direction of the PMI tends to precede changes in the trend of estimates such as gross domestic product and employment. If the PMI is painting an unpleasant picture, this could be an early warning sign for the economy and currency. Alternatively, a positive print has the potential to boost sentiment and raise confidence over the economic outlook.
All eyes on the Euro PMI
European investors will be keeping a very close eye on the latest eurozone purchasing manager’s index (PMI) data for September.
It will be released at 9 am London time and could offer some insight into the health of the region’s services and manufacturing industries in the face of Brexit related uncertainty and second wave of COVID-19 cases. Manufacturing PMI is expected to jump 51.9 in September from the 51.7 in the previous month while services PMI are projected to remain unchanged at 50.5.
What does this mean for the EURUSD?
The Euro has been punished by a resurgent Dollar this week with prices slipping to a two-month low under 1.1675.
A positive set of PMI figures from Europe could inject Euro bulls with enough inspiration to fight back, potentially pushing prices back towards 1.1750. However, if the data fails to meet expectations, the EURUSD could end up sinking to a fresh two month low around 1.1600.
Will pending PMI compound to Pounds woes?
Sterling has woken up on the wrong side of the bed today, weakening against the Dollar and most G10 currencies thanks to Brexit related drama and rising coronavirus cases. Fears over a second lockdown crippling the UK economy remain rife, and this continues to be seen in not only the Pound’s valuation but FTSE100.
The Pounds outlook this week may be influenced by the pending manufacturing and services PMI data due to be released this morning.
Manufacturing activity is projected to slip to 54.1 compared to the 55.2 in the previous month while services are forecast to decline to 56 from the 58.8 in August. A figure that fails to meet expectations is likely to compound to the Pound’s woes and provide permission for anxious investors to drag the currency lower.
Looking at the technicals, the GBPUSD is approaching 1.2650. A breakdown below this level could open the doors towards 1.2500.
Dollar Index breaks above key resistance
It took a four-letter word to push the Dollar Index higher, will the pending IHS Markit’s ‘flash’ Purchasing Managers’ Indices for US manufacturing and services in September support the upside?
Talking technicals, the Dollar Index is turning bullish on the daily timeframe. The solid daily close above 94.00 could encourage a move towards 94.65 and potentially 96.00. Should 94.00 prove to be reliable resistance, the DXY may decline back towards 92.70.