Euro Firm after Solid PMIs and German Ifo, But Outshone by Commodity Currencies

Euro remains firm against most major currencies but is outshone by commodity currencies today. Solid economic data from Eurozone lifts sentiments with major European indices trading higher at the time of writing. US futures also point to higher open. Meanwhile, Dollar and Sterling remain the weakest major currencies for the week. The Greenback will need something drastic from either US President Donald Trump or FOMC minutes to halt it’s decline against Euro and Swiss Franc. In other markets, gold is trading flat in tight range around 1260. WTI crude oil is losing some upside momentum but stays firm around 51.

Eurozone PMI hits six year high

Eurozone PMI manufacturing rose to 57.0 in May, up from 56.7, beat expectation of 56.5. That’s the highest level in more than six years. Eurozone PMI services dropped to 56.2, down from 56.4 and missed expectation of 56.4. Markit chief business economist Chris Williamson noted that "the consensus forecast of 0.4 percent second quarter growth could well prove overly pessimistic if the PMI holds its elevated level in June." Meanwhile, "although the pace of economic growth signalled by the PMI is historically consistent with the ECB taking a hawkish stance, the dip in cost pressures will add weight to arguments that there’s no rush to taper policy."

Germany PMI manufacturing rose to 59.4 in May, up from 58.2, beat expectation of 58.0. Germany PMI services dropped to 55.2, down from 55.4, missed expectation of 55.5. Markit noted that the data point to at least 0.6% growth in Q2, same as Q1. France PMI manufacturing dropped to 54.0, down from 55.1, missed expectation of 55.2. France PMI services rose to 58.0, up from 56.7, beat expectation of 56.7.

German Ifo hits record high

German Ifo business climate rose to 114.6 in May, up from 112.9, beat expectation of 113.1. That’s the highest level on record since the series began back in 1991. Expectation gauge rose to 106.5, up from 105.2 and beat expectation of 105.4. Current assessment gauge rose to 123.2, up from 121.1, beat expectation of 121.0. Ifo head Clemens Fuest noted in the statement that "economic activity in Germany remains very brisk" and businesses were feeling "euphoric". Ifo economist Klaus Wohlrabe said that French President Emmanuel Macron’s win has provided a tailwind." And "it is a signal that the European Union is not under acute pressure, as it was a year ago." Also from Germany Q1 GDP growth was finalized at 06% qoq, unrevised.

Eurogroup Chairman Jeroen Dijsselbloem said in a press conference after the Eurogroup meeting Eurozone finance ministers, IMF and Greek government failed to reach an "overall agreement" on debt relief for Greece. Nonetheless, the "formal conclusion of the second review is very close" and he holed to complete it in June. EU Economics Commissioner Pierre Moscovici is also hopeful for a deal at the next Eurogroup meeting in Luxembourg on June 15.

Sterling softens after Manchester terrorist attack

Sterling remains the weakest major currency for the week so far. At least 22 people were reported killed by the terrorist suicidal bomb attack in Manchester in UK. Another 59 people were injured. UK Prime Minister Theresa May condemned the attack and said it stands out for "its appalling, sickening cowardice, deliberately targeting innocent, defenseless children." Meanwhile, she pledged that "significant resources have been deployed to the police investigation, and there continues to be visible patrols around Manchester, which include the deployment of armed officers."

May halted her election campaign after the attack. But pressure on her and the Conservatives is piling up as recent poll showed that their lead over Labour halved. May would need to have a landslide win in the election on June 8 to give her a strong position for Brexit negotiation.

Also released today

Canada wholesales sales rose 0.9% mom in March. UK public sector net borrowing rose to GBP 9.6b in April. CBI reported sales dropped sharply to 2 in May. Swiss trade surplus narrowed to CHF 1.97b in April. Japan all industry activity index dropped -0.6% mom in March.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1178; (P) 1.1220 (R1) 1.1280; More….

Intraday bias in EUR/USD remains on the upside as 1.1161 minor support holds. We stay cautious on strong resistance from 1.1245/98 (138.2% projection of 1.0339 to 1.0828 from 1.0569 at 1.1245) resistance zone to limit upside and bring reversal. However, decisive break of 1.1298 will carry larger bullish implication and target 1.1615 resistance next. On the downside, below 1.1161 minor support will turn bias neutral first.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD now far above 55 week EMA. Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Economic Indicators Update