EUR/USD Bounce on Firmer PMI Unlikely to be Maintained

EUR/USD Bounce on Firmer PMI Unlikely to be Maintained

Main Point: Flash PMI's in the Eurozone have printed much better than expectations, which may come as a slight surprise given the recent statement of lockdown steps being extended. But, it is important to note that the flash poll, which had been conducted between March 12-23, therefore the majority of the answers were collected prior to the statement on lockdown measures. Subsequently, I wouldn't read too much into the figures and expect the Euro to remain soft. Nonetheless, the French figures pointed to a softer contraction for the first time in 3 months, however, French company activity has remained in contraction since September. Elsewhere, German Manufacturing PMI struck a record high in 66.6 with a few firms profiting from fewer constraints at the moment. Meanwhile, inflationary pressures have improved yet again amid a near-record increase in input costs, strengthening the view that near-term transitory spikes of inflation will be expected going forward.

Market Reaction: In response to the better than anticipated PMI reports, the Euro has seen a reprieve with EUR/USD rising from 1.1812 to 1.1830. On the other hand, the move is marginal at best and unlikely to detract from your overarching theme that the single currency remains pressured from the simple fact that the EU is heading into a third Covid wave, a sluggish vaccine rollout application, while Turkish Lira tail dangers are also a concern.

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