EZ Economy Pulling in Different Directions as Factories Struggle but Services Shine

Service Sector Buoyed While Manufacturing Conditions Worsen

According to S&P Global, “Eurozone economic growth accelerated in April as a rebounding service sector, benefitting from loosened COVID-19 restrictions, helped compensate for a near stalling of manufacturing output”. Overall, despite rising input costs and general inflation concerns, the manufacturing data printed above expectations of 54.7

(Composite) April Flash Euro Zone PMI at 55.8 vs 54.9 in March
(Services) April Flash Euro Zone PMI at 57.7 vs 55.6 in March
(Manufacturing) April Flash Euro Zone PMI at 55.3 vs 56.5 in March

Readings above 50 tend to signal optimism and industry expansion while reading below 50 indicate a contraction.

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In the moments that followed the release, EUR/USD continued to trend lower. The bearish decline had stalled in the leadup to the release.

EUR/USD 5-Minute Chart

Source: TradingView, prepared by Richard Snow

There may be some added euro volatility later today as Christine Lagarde is due to speak. Yesterday, she joined Jerome Powell at a panel discussion hosted by the IMF, with Powell’s comments stoking already aggressive rate hike expectations, which boosted the dollar and lead to a massive reversal in EUR/USD.

EUR/USD 4-Hour Chart Highlighting Bearish Turnaround