Key PMI Data – May Release
| Country | Indicator | Actual | Forecast | Previous |
|---|---|---|---|---|
| France | Manufacturing PMI (Flash) | 49.5 | 48.9 | 48.7 |
| France | Services PMI (Flash) | 47.4 | 47.7 | 47.3 |
| Germany | Manufacturing PMI (Flash) | 48.8 | 48.8 | 48.4 |
| Germany | Services PMI (Flash) | 47.2 | 49.6 | 49.0 |
Summary and Economic Interpretation
The latest PMI data from France and Germany suggests that the eurozone’s largest economies remain under pressure, with signs of stagnation and weak consumer demand, particularly in the services sector. Let’s break this down:
France
- Manufacturing PMI surprised to the upside, rising to 49.5, above both forecast (48.9) and previous (48.7). This marks the strongest reading in over a year, signaling improving confidence in France’s industrial output.
- Services PMI, however, slipped to 47.4, slightly below expectations. This is the third consecutive month of contraction in the French services sector, indicating weak domestic demand and potential employment pressures.
Germany
- Manufacturing PMI remained flat at 48.8, in line with forecasts and slightly better than the previous reading. Despite this, it’s still below the 50-threshold, implying ongoing contraction.
- Services PMI fell sharply to 47.2, missing expectations (49.6) and plunging below April’s reading (49.0). This marks a significant deterioration and suggests weak internal demand, particularly in consumer-facing sectors.
Market Implications
Euro (EUR) Outlook
The data is mixed but leaning negative, especially due to Germany’s services sector — the backbone of its economy — falling deeper into contraction. The EUR could face downside pressure in the short term, especially if upcoming inflation data and ECB commentary do not offer a hawkish counterbalance.
- A modest pickup in French manufacturing is not enough to outweigh broader eurozone service sector weakness.
- Traders may start pricing in ECB rate cuts sooner than anticipated if services data continues to underperform.
Bond Yields & Equities
- German Bund yields may decline as expectations for monetary easing increase.
- Eurozone equities could react positively in the short term due to stimulus expectations, but weak services data may limit upside.
Currency Pair Impacts
EUR/USD
- Likely to test downside levels, especially if U.S. economic data continues to beat expectations.
- Watch for support around 1.0800 and 1.0750. Resistance remains at 1.0900–1.0950.
EUR/GBP
- Could fall further if UK services data outperforms in upcoming releases.
- German services miss makes EUR vulnerable to GBP strength.
EUR/JPY
- Risk sentiment and global yields will drive this pair.
- A weak EUR combined with relatively stable or bullish JPY (especially if risk-off sentiment grows) could push this pair lower.
Final Thoughts for Traders
While the eurozone manufacturing sector shows nascent signs of stability, the sharp contraction in services, particularly in Germany, casts a shadow on the overall economic outlook. Forex traders should be cautious on EUR longs and look for confirmation from inflation or employment data before considering bullish positions.
The Euro remains under pressure in the medium term, and cross-currency strategies (e.g., EUR/GBP, EUR/CHF) may offer better risk-reward than outright EUR/USD trades.
