More Bad News For Euro

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Market Drivers April 18, 2019
EZ PMIs show manufacturing in the dumps
UK and AUD data beats
Nikkei -0.84% Dax -0.05%
Oil $63/bbl
Gold $1276/oz.

Europe and Asia:
AUD Jobs 25K vs.15K
EUR PMI 47.8 vs. 48.1
GBP Retail Sales 1.1% vs. 0.3%

North America:
USD Retail Sales 8:30
CAD Retail Sales 8:30

Another set of disappointing PMI results out of Europe rocked the euro in morning Frankfurt dealing today sending the pair below the 1.1250 level before finally finding some support.

The EZ flash PMI readings – the absolute latest measure of conditions on the ground – came in at 47.8 versus 48.1 dropping further into contractionary territory. According to Markit, “Backlogs of work dropped for the fourth time in the past five months and have not shown any growth since last November. The reduction in backlogs was only fractionally smaller than in March, which had seen the steepest decline since December 2014.”

The only saving grace from the report was rebound in German services PMI which helped offset some of the weakness in manufacturing. Still, Germany which is the core of the European economy, remains highly vulnerable to manufacturing slowdown which itself is roiled not only by cyclical but secular factors. A massive part of German economy – and European manufacturing sector as well is dependent on car production which is going through wrenching changes and existential threat from electric vehicles.

It’s difficult to imagine that Europe will see any rebound in manufacturing any time soon and the region’s best hope for growth remain in services where the demand appears to be more stable and stronger.

Elsewhere data in Australia and UK both beat to the upside but Aussie saw little follow through while cable actually fell towards the 1.3000 level on broad risk-off selloff in London morning trade.

The focus turns now turns to North American calendar with traders eyeing Retail Sales from both US and Canada. US Retail Sales are expected to rebound strongly to 0.9% from -0.2% the period prior, but a miss there could trigger a fresh wave of risk-off flows with USDJPY falling further away from the 112.00 figure. As we’ve noted earlier if the pair fails to hold the key level this could be the fourth consecutive time that it has been rejected at the top of the range. On the other hand, a strong print could bring out the bulls in force and the long will try hard to bust through the 112.25 final resistance setting up a run towards 114.00 as market sentiment shifts towards the idea of pick up in US growth in H2 of this year.

Boris Schlossberg
Managing Director

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