TALKING POINTS – EURUSD FORECAST, US ISM DATA, EUROZONE PMI, GLOBAL GROWTH, FED MONETARY POLICY, ECB MEETING
- EURUSD may fall on Eurozone PMI data
- US ISM publication may pressure Dollar
- Global growth prospects continue to dim
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Today’s release of US ISM data and Eurozone PMI will provide key insight on how local producers are feeling about the outlook for growth. US ISM data and Chinese Caixin PMI have certainly not comforted investors, and central banks are taking notice. Market participants are now pricing in a 92 percent probability of a Fed rate cut by the September meeting. If data undershoots, it is likely these dovish expectations will be amplified.
The same could be said of the ECB which will be having a rate decision followed by commentary on June 6. US ISM non-manufacturing/services composite for May is expected to register at 55.5, unchanged from the prior month. Eurozone Composite PMI is forecasted to be at 51.6 – also unchanged from the previous month. A sour outcome from the data may elicit a temporary shock and create risk aversion if growth prospects are further put into question.
The US Dollar in this regard may then outperform the Euro as traders switch from chasing risk to preserving capital. The appeal of the US Dollar’s unparalleled liquidity will subsequently be triggered and will act as an island in a stormy sea of volatility. This may then pressure the pair to retreat from its recent reentry into the 18-month descending resistance.
Capital flight from the Euro may be compounded if the ECB’s outlook is more pessimistic than markets are currently pricing in. Certainly, the upcoming PMI data will serve as a fresh beacon of where growth is headed for one of the largest economies in the world. However, market participants may wait for the ECB meeting before placing any more trades to see what central bank officials think of European growth prospects.
CHART OF THE DAY: CAPITULATION AHEAD FOR EURUSD?
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter