US April PMI data preview: Economic strength expected to extend into early second quarter

• S&P Global PMIs are expected to indicate that US business activity continued to grow in April.
• Manufacturing and service production is expected to advance at a moderate pace.
• EUR/USD remains above 1.0600, short-term downtrend remains intact.

S&P Global on Tuesday will release preliminary estimates of the United States (US) Purchasing Managers' Indices (PMI) for the month of April, a survey that measures business activity throughout the month. The report is divided into services and manufacturing and compiled into a final figure, the composite PMI.

Economic activity in the US private sector expanded at a moderate pace in March, with the S&P Global Composite PMI falling to 52.1 from 52.5 in February. The services PMI fell to 51.7 from 52.3 in this period, while the manufacturing PMI fell to 51.9 from 52.2.
According to Chris Williamson, Chief Economist at S&P Global Market Intelligence, “the further expansion of production in the manufacturing and services sectors in March helped close the strongest quarter for the US economy since the second quarter of last year.”

“Survey data points to another quarter of strong GDP growth, accompanied by sustained hiring, as businesses continue to report growth in new orders,” Williamson added. “A sharp rise in costs, combined with strengthening pricing power amid the recent rebound in demand, meant that inflationary pressures picked up pace again in March.”

What to expect from the next S&P Global PMI report?

Both the S&P Global Manufacturing PMI and Services PMI are expected to come in at 52 in the April flash estimate, highlighting the ongoing expansion in private sector economic activity. Any reading above 50 indicates that economic activity is growing, while an indicator below this threshold suggests contraction.

Since the beginning of the year, the two highlights of the US economy have been robust activity and stubborn inflation. Hence, market participants have changed their expectations towards a prolonged delay in the Federal Reserve's (Fed) policy shift towards rate cuts. At the beginning of the year, investors predicted that the Fed would lower official interest rates as early as March. Employment, activity and inflation data for the first quarter of 2024 surprised broadly to the upside and caused investors to reassess the outlook for US central bank policy. According to CME's FedWatch tool, markets currently value the probability that the Fed will lower the official interest rate in September at 65%.

Preliminary PMI data for April is expected to confirm that the US economy maintained its strength at the start of the second quarter. Comments on input costs could also point to persistent inflationary pressures.

When will S&P Global's preliminary April PMI data be released and how could it affect EUR/USD?

The S&P Global PMI report will be released on Tuesday at 13:45 GMT. Ahead of the event, the US Dollar (USD) remains firm against its rivals. The Solar Index (DXY), which tracks the performance of the Dollar against a basket of six major currencies, appears to have entered a consolidation phase after reaching a five-month high above 106.00 the previous week. driven by Fed comments and risk aversion.

Unless the manufacturing or services PMI unexpectedly falls below 50 and shows a contraction in sector activity, the Dollar could remain firm. If the release reveals a drop in private sector employment, or a decline in input costs, the dollar could come under selling pressure even if headline PMIs remain above 50.

Eren Sengezer, Chief Analyst of the European session at FXStreet, shares a brief outlook on EUR/USD:

“The Relative Strength Index (RSI) on the daily chart remains below 40, suggesting that EUR/USD has more room to the downside before it becomes technically oversold.”

“On the upside, 1.0700 (static level) is lined up as interim resistance before 1.0750, where the 20-day SMA lies. A daily close above this level could attract technical buyers and open the door to an extended recovery towards the 200-day SMA at 1.0820. On the other hand, supports are located at 1.0600 (static level), 1.0500 (psychological level, static level) and 1.0450 (low). of October 3).”