Euro rebounds on Eurozone PMIs but gains limited

Forex market activity remains relatively calm as trading enters US time. The euro is showing signs of recovery ahead of key support levels against the dollar and significant support against the pound. Her PMI for the eurozone revealed that the economic recovery is strengthening and Germany, the region's largest economy, is finally catching up. Despite this positive data, the euro's appreciation remains modest.

The New Zealand dollar is currently the day's best-performing currency, supported by strong retail sales data. The Swiss Franc is third best performing, followed by the Australian dollar. Meanwhile, the dollar has fared the worst, followed by the Japanese yen and British pound. The Canadian dollar and euro are in between the performers.

Technically, the focus is on whether EUR/USD can extend the bounce from the slight resistance-turned-support at 1.0810. A further breakout above 1.0894 would confirm the underlying bullish momentum. The upside from 1.0601 should next target the resistance at 1.0980.

In Europe, the FTSE was flat at the time of writing. The DAX was up 0.41%. The CAC was up 0.50%. UK 10-year bond yields were down -0.021 to 4.215. German 10-year bond yields were up 0.012 to 2.551. In early Asian trading, the Nikkei was up 1.26%. Hong Kong's HSI was down -1.70%. China's Shanghai SSE was down -1.33%. Singapore's Straits Times was up 0.44%. Japan's 10-year government bond yields were up 0.002 to 1.003.

The number of new unemployment insurance claims in the United States falls to 215,000 from the expected 220,000.

Initial U.S. jobless claims fell 8,000 to 215,000 for the week ended May 18, below the expected 220,000. The four-week moving average increased 2,000 to 220,000. Continuing claims increased 8,000 to 1.794 million for the week ended May 11. The four-week moving average of continuing claims increased 5,000 to 1.782 million.

UK manufacturing PMI rises to highest level in 22 months, services growth slows

The UK manufacturing PMI rose to 51.3 from 49.1 in May, beating expectations of 49.2 and the highest level in 22 months. Meanwhile, the PMI for services fell from 55.0 to 52.9, lower than the expected 54.8 and the lowest level in six months. As a result, the PMI composite index fell from 54.1 to 52.8.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the preliminary PMIs showed “further expansion” in UK business activity, consistent with second-quarter GDP growth of around 0.3%. Stated. He emphasized “promoting the revival of the manufacturing industry with sustained but modest growth in the service sector.”

The survey also revealed some positive news, with services sector inflation showing signs of moderating. Businesses reported the slowest price growth in three years, and headline inflation moved closer to the Bank of England's target. Williamson said the PMI data supported the view that the Bank of England would begin cutting interest rates in August if data continued to improve over the summer.

The Eurozone PMI composite index reached a 12-month high of 52.3, with GDP growth expected to be 0.3% in the second quarter.

Eurozone manufacturing PMI rose to 47.4 from 45.7 in May, beating expectations of 46.6 and marking a 15-month high. The services PMI remained unchanged at 53.3, slightly below expectations of 53.5. The composite PMI rose from 51.7 to 52.3, reaching a 12-month high.

The euro zone economy is “getting stronger,” said Cyrus de la Rubia, chief economist at Hamburg Merck Bank. He noted that new orders are growing at a healthy pace and business confidence is being reflected in steady hiring.

Furthermore, Mr. Della Rubia pointed out that there have been some positive developments for the ECB. Service sector input and output price inflation slowed. This trend supports the ECB's clear intention to cut interest rates at its next meeting on June 6th.

De la Rubia incorporated the PMI numbers into his GDP forecast and suggested the euro area was likely to grow at a 0.3% rate in the second quarter, effectively dispelling fears of a recession, and went on to suggest that GDP growth this year could reach closer to 1%, with even higher growth possible.

Also released, France's manufacturing PMI rose to 46.7 in May from 45.3. The services PMI fell to 49.4 from 51.3. The composite PMI contracted again, falling to 49.1 from 50.5.

Germany's manufacturing PMI rose to 45.4 in May from 42.5, its highest level in four months. The services PMI rose to 53.9 from 53.2, its highest level in 11 months. The composite PMI rose to 52.2 from 50.6, its highest level in 12 months.

Japan's manufacturing PMI rises to 50.5, expanding for the first time in a year

Japan's manufacturing PMI rose to 50.5 from 49.6 in May, beating the forecast of 49.7 and signaling the first economic recovery in a year. Meanwhile, the services PMI fell to 53.6 from 54.3, while the composite PMI rose slightly to 52.4 from 52.3.

Jingyi Pan, associate director of economics at S&P Global Market Intelligence, noted that Japan's private sector expansion accelerated for a third consecutive month, hitting the fastest pace since August 2023. This suggests growth momentum has continued into the middle of the second quarter, signaling an improvement in GDP numbers after disappointing first-quarter results.

Pan stressed that while the expansion in business activity remains “service-led,” broader growth is expected in the second half of the year as manufacturing output remains “near stable.”

Both input cost and output price inflation have eased, indicating “weakening inflationary pressures across the board in official indicators.” However, manufacturers continue to face rising cost pressures, due in part to “yen fluctuations,” which remains an important factor to monitor.

Australian PMI composite index falls to 52.6 as cost pressure increases

Australia's manufacturing PMI was flat in April at 49.6, its highest level in nine months. The services PMI fell slightly from 53.6 to 53.1, and the composite PMI fell from 53.0 to 52.6.

Warren Hogan, chief economic adviser at Judo Bank, said the PMI “remains firmly in expansionary territory” and that growth is “in line with, if not a little above, the long-term trend.”

But Hogan warned that weak consumer spending will hamper growth in the first half of the year. Nevertheless, businesses are still hiring, with the employment index reaching a six-month high.

The headline input price index rose to a six-month high amid a slight uptick in cost pressures in the services sector. “This does not suggest that domestic inflation pressures will ease materially in the second quarter,” Hogan said.

Furthermore, input prices for the manufacturing industry hit a one-year high in May, raising concerns about further deflation in domestic commodity prices. This was crucial in keeping inflation below 4% over the past year. Rising commodity inflation, along with rising service sector inflation, is a major concern for the RBA, which expects inflation to fall over the next 18 months.

New Zealand's retail sales rose 0.5% in the first quarter, ending two years of stagnation.

New Zealand's first quarter retail sales increased 0.5% quarter-on-quarter to NZ$25 billion, well above the expected decline of -0.3% quarter-on-quarter. Sales increased 0.7% quarter-on-quarter to NZ$30 billion.

“Most industries saw growth in the March quarter, with retail activity increasing slightly,” said Melissa MacKenzie, manager of corporate finance statistics. “This followed two years of decline.”

Nine of the 15 retail sectors saw sales growth during the quarter, with the most notable contributions coming from food and beverage services (up 2.2%), motor vehicle and parts retailers (up 1.1%), entertainment goods retailers (up 4.7%) and accommodations (up 4.1%).

GBP/USD intraday outlook

Daily pivots: (S1) 1.2691; (P) 1.2726; (R1) 1.2753; etc…

The intraday bias for GBP/USD remains neutral for now. On the upside, a decisive breakout of the 100% projection of 1.2445 to 1.2298 at 1.2780 would extend the rally towards the resistance at 1.2298 to 1.2892. However, a breakout of 1.2685 would see minor support turn the bias back to the downside, triggering a pullback below the 55 4H EMA (currently 1.2661).

In the big picture, the price move from the medium-term high of 1.3141 is seen as a correction pattern. The drop from 1.2892 is seen as the third phase, which may already be completed. A break above the resistance at 1.2892 would set the stage for a larger uptrend from 1.0351 (2022 low) to resume up to 1.3141. Meanwhile, a break above the support at 1.2298 would signal an extension of the correction pattern.

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