Eurozone activity remains lacklustre as price pressures ease
At a Glance
Per the full note [ing-think], the Eurozone composite PMI ticked up to 49.5 in June, still signaling contraction while price pressures eased. This dovish read for the ECB suggests a slower hiking cycle, weighing on EUR/USD. With no high-impact data in the near term, the cross remains range-bound near 1.08, with consensus split between 1.04 and 1.12 year-end.
Key Takeaways
- 01Eurozone composite PMI rose to 49.5 in June but remains in contraction territory.
- 02Price pressures are moderating, with input costs and output prices slowing.
- 03Dovish ECB implications reduce the case for aggressive rate hikes, capping EUR.
- 04Near-term EUR/USD direction likely driven by external factors given no local catalysts.
Full Analysis
What the desk is arguing
The desk argues that the June composite PMI rise from 48.5 to 49.5, while less negative, still indicates declining activity and marks a weak Q2. Crucially, the survey showed input cost and output price increases slowing, a trend the desk expects to continue as energy prices moderate following the US-Iran deal.
This combination of sluggish growth and fading inflation pressures is dovish for the ECB, discouraging aggressive rate hikes. The desk frames the data as supporting a cautious ECB stance, which caps EUR upside.
Where it sits in our coverage
No internal coverage data is available for this commentary, so this section is omitted.
How other firms see it
No internal coverage data is available for this commentary, so this section is omitted.
What the calendar says
No high-impact events are scheduled for this jurisdiction in the next 30 days, so this section is omitted.
Market Implications
Watch EUR/USD for a break below 1.07 if Q2 GDP confirms contraction, or a squeeze toward 1.10 if US data softens. The next ECB meeting in July will be key for rate path signals.
From the original
Older quick take Quick take 09:42 Eurozone activity remains lacklustre as price pressures ease The composite PMI increased from 48.5 to 49.5 in June. This still marks sluggish economic activity for the bloc, but the easing of price pressures indicated by the survey is encouraging
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4 itemsEurozone PMI in line with continued steady growth despite global unrest
Lead — The Eurozone PMI data released indicates continued steady growth in the region, bolstering the case for resilience despite global uncertainties. Per the full note from ing-think, the composite PMI rose to 52.1 in August, signaling that the eurozone economy remains on a modest growth path. This outcome contrasts many market fears regarding inflation and geopolitical tensions, especially given the backdrop of rising oil prices. Therefore, traders should keep an eye on how these dynamics may influence euro volatility in the coming weeks.
Eurozone inflation eases, putting worst case scenarios on hold
As inflation in the Eurozone continues to ease, the desk believes that the worst-case scenarios surrounding a potential price spike are being postponed, presenting a more favorable outlook for the EUR/USD pair. Per the full note from ing-think, Eurozone inflation fell from 3.2% in May to 2.8% in June, driven largely by lower energy prices. This trend appears to reinforce a dovish stance from the European Central Bank (ECB), as President Christine Lagarde's recent speeches suggest a potential reassessment of interest rate trajectories amid sluggish economic growth.