- The Advanced PMIs of May of S&P Global are expected to show a slight fall in the manufacturing sector.
- Markets expect the Federal Reserve to cut the fees in September at 25 basic points.
- EUR/USD maintains trade in the three -year maximum zone above 1,1500.
S&P Global will publish the Purchase Managers Index (PMI) May for the United States at 13:45 GMT on Thursday.
The report comprises three measures: the manufacturing PMI, the PMI of Services and the compound PMI (a weighted mixture of the two), each calibrated in such a way that the readings above 50 indicate expansion and those that are below 50 indicate contraction. Published greatly to many official statistics, these monthly snapshots evaluate everything, from production and export trends to use capacity, employment and inventory levels, and are largely considered as reliable advanced economic indicators.
In April, the compound PMI dropped to 50.6 from 51.2 in March, indicating a loss of impulse in the economic activity of the private sector. In this period, the PMI of services decreased to 50.8 from 51.4, while the manufacturing PMI fell to 50.2 from 50.7. When evaluating the findings of the survey, Chris Williamson, head economist in S&P Global Market Intelligence, said that the data of the April PMI highlighted a marked deceleration of the growth of business activity at the beginning of the second quarter, accompanied by a fall in optimism about perspectives. “At the same time, price pressures intensified, creating a headache for a central bank that is under growing pressure to underpin a weakened economy just when inflation seems to be ready to increase,” Williamson added.
What can we expect from the next report of the Global S&P PMI?
Market expectations suggest that PMI readings in May will change little. The services PMI is expected to remain stable at 50.8 and that the manufacturing PMI drops to 50.1 from 50.2.
By anticipating PMI data, TD Securities analysts said: “May preliminary PMIS could reflect some optimism in their responses after the recent relaxation in the commercial war between the US and China.”
“Note that the survey is carried out during the two intermediate weeks of the month. That said, while we project an increase in the 52.0 services index, we expect a fall in the manufacturing PMI towards contraction territory,” the analysts added.
When will the preliminary PMIS of March of the US of S&P global be published and how could they affect the EUR/USD?
The manufacturing PMIS report, of services and compound of Global S&P will be published on Thursday at 13:45 GMT and is expected to show a marginal expansion in the business activity of the US private sector.
In the event that both PMIS exceed 52, the immediate reaction of the market could boost the US dollar (USD). On the contrary, the USD could face a new sales pressure if the PMIS fall below 50 in May.
The underlying details of the PMI surveys could boost the valuation of the USD if the main readings arrive near market estimates. In the event that the publication suggests a strengthening of input inflation, investors could see it as a signal that points to a Federal Reserve (Fed) policy in the next meetings, or a hard line review to the projections of interest rates in the June Revised Projections Summary. In this scenario, the USD is likely to exceed its rivals in the short term. On the other hand, the USD could have difficulty finding demand and helping the EUR/USD to rise if the survey highlights a significant reduction in private sector payrolls.
Eren Sengezer, main analyst of the European session at FXSTRET, shared a brief overview of the short -term technical perspective of the EUR/USD:
“The indicator of the relative force index (RSI) in the daily graphic rises to 60 after spending the previous week below 50, reflecting an accumulation of bullish impulse. In addition, the EUR/USD closed above the simple mobile average of 20 days for the first time in two weeks on Tuesday.”
“On the positive side, 1,1500 (static level, end point of the upward trend from January to April) is aligned as a strong level of resistance before 1,1575 (maximum of April 21) and 1,1670 (static level of October 2021). Looking to the south, support could be identified in 1,1200 (fibonacci setback of 23.6% of the upward trend), 1,1120 (SMA 50 days) and 1,1015-1.1000 (fibonacci setback of 38.2%, round level). “
Fed Faqs
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non -standard policy measure used during crises or when inflation is extremely low. It was the weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of the US dollar.
(This story was corrected on May 22 at 08:39 GMT to say at the first point that the advanced PMIs are May, not April.)
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
